Mainstream banking facilities have all but disappeared from low income areas. The Bank of Salford offers an alternative model.
Conservatives last week described Labour leader Ed Miliband’s decision to look at breaking up the big banks as putting taxpayers’ money at risk.
As if on cue, soon after Miliband’s announcement the value of the taxpayers’ stake in Lloyds and RBS went down.
Some perspective, though, please. Did Miliband cause RBS and Lloyds together to lose in excess of £21.5bn by 2011 – around £700 per taxpayer? Is it Miliband’s fault that RBS paid a billion pounds in bonuses to its staff for 2010 on the same day that it reported a loss of £1.1bn?
Iain Martin, for the Telegraph – by no means sympathetic to Miliband – reminded readers on Sunday that the government paid £45.2 billion to bail out RBS after it almost collapsed in October 2008, since which politicians have repeatedly talked about returning the money to taxpayers.
However, as Martin went on to say: even before Mr Miliband’s announcement, RBS has been shrunk so dramatically that the amount the Treasury can recover is believed to be well short of £45.2 billion. The bank estimates a possible shortfall of £7 billion-£10 billion.
And guess what – this isn’t Miliband’s fault, either.
Reacting to what Miliband said last week, Vince Cable popped up on Sky News to say that capping the size of Britain’s banks will not create more competition, before going on to talk about the challenger banks that have been created out of RBS and Lloyds and berating the banks for poor lending to small businesses.
But what’s the point in challenger banks if not to create more competition – which Cable obviously thinks has been stifled in this country? Clearly given that the top five banks in the UK account for 92 per cent of small business lending, using market intervention to break the deadlock in access to business finance is only going to be solved if other lending institutions are put on a level playing field.
To do this looking at the US system, where banks are limited to holding no more than 10 per cent of retail deposits, seems a perfectly sensible thing to do.
If there is a problem in any of these discussions around Miliband’s plans then it is the lack of focus around what banks can do for individuals and consumers.
On Sunday, the Mayor of Salford Ian Stewart penned a passionate article defending the right for people to have access to responsible finance for the Guardian.
In Britain, Stewart pointed out, a third of people do not earn enough to cover their monthly costs. In Salford alone that figure was closer to 50 per cent. Indeed, in a paper I wrote for the Centre for Labour and Social Studies last year, I reported on a Unite survey of its own members that found 82 per cent were using sources other than their incomes alone to make it through to the end of the month.
This has to do with the cost of living rising faster than wages. According to Bacs Family Finance Tracker, the average annual total for household utility bills stood at £8,202 in 2013 – up significantly from £5,834 in 2007.
Additionally, amid poor annual wage rises or even pay freezes, food prices have risen by 4.5 per cent according to the ONS last year.
Indeed in the boom years of 1997-2007 wage increases were not primarily what sustained our standards of living, but the growth of consumer credit. When mainstream banking facilities all but disappeared from low income areas, so did the ability to supplement poor wages with credit. While banks have left those areas the need to top up incomes didn’t.
This is what explains the rise of dangerous debt from exorbitant lenders. A CityWire report last year showed that 52 per cent of credit products on the high street are from non-banks and ‘other’ financial institutions, including payday lenders and pawnbrokers.
The retreat by mainstream banks has all but caused the growth of legalised loan sharks.
This is where Salford wants to do things differently, in Ian Stewart’s words, to create “a genuinely local bank to serve the people of Salford”.
The Bank of Salford is the outcome of a partnership between Unite members, Salford credit union and the Salford Local Authority – where it hopes to run its payments, payroll and reserves through.
A credit union is a cooperative financial institution where those who have a membership actually own a stake in the credit union. They offer credit at very competitive rates of interest, and usually offer other services such as debt advice. In essence they act as a corrective to the shareholder-focus of mainstream banks in the world today.
Access to responsible finance, co-operative principles, and a challenge to mainstream banks that have fled working class areas, as well as the payday lenders who have now entered to rip those areas off, have been left out of the recent banking debates.
Let’s hope the continued work in Salford shows politicians that there is a better way to challenge the big five.
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