How to really protect the recovery

The economy will take centre stage in the election. The debate on which party is best placed to ensure the UK doesn't slip back into recession is underway.

The economy will take centre stage in the election campaign. The debate on which party is best placed to ensure the UK does not slip back into recession is already underway. Tax rises versus swingeing cuts; deficit reduction versus fiscal stimulus; to NI or not to NI.

We are told that there is a ‘real choice’ between Labour spending and Conservative miserliness. In truth, after the election both (or maybe all three) parties will have to maintain a level of public spending whilst beginning the painful process of managing the deficit through both cuts and tax rises.

The only question is whether one party appears to have a clearer idea, and perhaps the experience, of how to go about doing this. Partisanship aside, the NI fop by the Tories is farcically and suspiciously inconsistent with the stated goal of deficit reduction. Support from some of the country’s highest paid individuals (‘business leaders’) for both this policy and for a party which clearly has their interests and corporate profit in mind does not come as a great shock – it does not validate the approach, however.  

But that a 0.5% increase in NI is the main delineator between the parties is a sign of how weak the debate has become. What continues to be missing from the rhetoric and policy arguments is a sensible, credible, and honest plan for financial reform. As Robert Reich so eloquently describes, it appears that politicians have forgotten that the reason the world teetered on the brink of an economic doomsday was, primarily, the size and complexity of the banking system. And they also seem to have forgotten that the people voters dislike even more than politicians are bankers.

Therefore a simple policy for addressing the financial system, clearly articulated, can both structurally help to protect the recovery as well as significantly reducing income inequality and the ludicrousness of bankers’ bonuses.

How? This blog has made the point time and again (even before Mervyn King and Vince Cable broke rank and argued for something similar): break up the banks. Splitting our gargantuan banks into smaller units, with individual capital requirements, more straightforward risk management and decision making, reduced complexity and dedicated lines of business (as opposed to ‘full service) ensures that should an institution get into trouble again, it is unlikely to bring down the entire system. If the US and Europe could come to an agreement on how to implement such changes (which would be difficult but by no means impossible) then the risk of a future shock, a requirement for taxpayer support and economic downturns would be significantly reduced.

Even better, a more competitive banking system (as opposed to the cartel that currently operates) would limit the amount of money bankers can earn. Because in a truly competitive market, which those on the right aspire to, truly ridiculous profits (therefore bonuses) simply cannot be made.

Banks would be very upset. A number of cataclysmic scenarios would be put forward by lobbyists and politicians who themselves sit on the boards of various financial institutions. But the fact is that this is the only real way to both protect the recovery and to cut bonuses. And it is a definite vote winner.

Like this article? Sign up to Left Foot Forward's weekday email for the latest progressive news and comment - and support campaigning journalism by making a donation today.