Earlier today, Labour Leader Ed Miliband set out his stall on the economy. His speech, focusing primarily on fixing the British banking system, raised a few further questions Miliband and his colleagues need to answer:
1. Will more banks mean more competition?
Much has been made in the press about the impact on consumers and markets of Labour’s plans to split up a bank, but the real question is whether a new spin-out from an existing bank (built with existing staff and existing IT infrastructure) would actually provide genuine competition. Another high-street bank making the same ‘computer-says-no’ decisions on lending to businesses may not provide the type of competition the UK is getting from foreign banks trying to crack in to the UK market. The UK needs banks with different business models; simply splitting a bank up won’t guarantee that.
2. What will Labour do to support business investment in the short run?
Greater competition – as well as a diversification – in banking is needed, but its a long-term project. The UK needs to support business investment now. What are Labour’s plans to do that?
3. Some owner-run SMEs don’t have credit scores. Would being off the register hurt them?
Some smaller, owner-manager finance their business via director loans. The problem is that Credit Agencies take a poor view of that type of funding because it could be recalled at any time. The risk is that a register becomes an ad hoc filter for lending to SMEs – SMEs with a rating above a certain level get funding, all others are excluded – while more tangible and relevant factors like cash flow and business models get forgotten.
4. Would Labour’s new British Business Investment Bank lend to British business?
The current British Business Bank hasn’t made a single loan to a British business and never will. It’s designed to put more capital into existing and new funds. Would a Labour version lend directly to British businesses? If so, how long would it take to set up?