RBS debate exposes Government weaknesses

November 13, 2015

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A week ago MPs took to the floor of the House of Commons to debate banking reform and the future of the public ownership of the Royal Bank of Scotland.

Around 35 MPs attended throughout the 3 hours of discussion, with their numbers no doubt boosted thanks to more than 3,000 supporters emailing their MP and urging them to attend. Even better was the quality of the debate, with 15 registered speakers and numerous interjections from across the House.

Whilst MPs inevitably referenced the projected £14 billion loss to taxpayers of selling off the bank, there was also strong focus on the broader issues of process, policy, and purpose – including consistent support for more diversity in banking types, including locally-oriented stakeholder banks.

On process, the Government’s shambolic approach to the share sale was roundly criticised from both opposition and Government MPs.

Several Members pointed out that no substantive evidence has been provided by Government that the return of RBS back to the private sector will in fact boost the economy, support jobs, or provide reliable banking services that the public rely on.

“By failing to provide evidence justifying the sale and to consider alternative options, the Government are putting ideology above what is best for the economy and the taxpayer,” Kate Osamor, Labour MP for Edmonton, said.

“I am at a loss a to why the decision has been taken to return RBS to private hands when the Treasury has not even responded to the concerns raised by the Treasury Committee” added Guto Bebb, Conservative MP for Aberconwy.

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The Government has consistently relied on a two page letter from Mark Carney, the Governor of the Bank of England, and a 13 page report from Rothschild investment bank to justify the sale.

This is despite the fact that neither actually provide any evidence on how returning the bank to the private sector would have any positive benefit for the taxpayer or the economy. In fact, the Rothschild report explicitly states that it merely examines when to sell the shares, not whether the shares should be sold or not.

Picking this up, Labour MP for Dagenham and Rainham, Jon Cruddas, criticised the Government’s blanket assertion that privatisation would help the economy.

“Where is the evidence for those assertions?” he asked in typically firebrand fashion. “Neither the Government, nor the Bank has provided any.”

Branding the Rothschild report as “one of the thinnest and weakest papers I have ever seen,” Labour MP and Member of the Treasury Select Committee Helen Goodman also agreed, pointed out that the report “at no point quantifies the benefits to the public of the sale.”

Perhaps more shockingly, Goodman revealed that the Governor of the Bank of England, Mark Carney, had refused “point blank” to reveal the analysis that he claimed backs up his recommendation to sell the RBS shares. Goodman also revealed that she has referred the RBS sale to the National Audit Office, to challenge the Government’s claim that a £14 billion loss represents “good value for money” to the taxpayer.

By means of a solution to the problems of the past, several MPs spoke extensively about the benefits of public stakeholder banks, which combine making a sustainable profits with investing in local areas and being run in the public benefit.

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Several MPs referenced New Economics Foundation research on the strength of the German Sparkassen banks, as well as multiple references to the Move Your Money polling, which shows strong opposition to current Government policy, as well as support for alternative solutions.

The most consistent defender of Government policy was ex-banker Jeremy Quin, Conservative MP for Horsham, who correctly pointed out the benefits banks receive from operating at scale.

What wasn’t pointed out at the debate was that a network of local banks would still receive those benefits of operating at scale, whilst also conducting lending and business operations in a way that benefit local communities and promote local economies – unlike big shareholder banks.

By contrast, the defence of Government policy made by the City Minister was weak. Outrageously, Harriet Baldwin claimed that the motion (which called for a review of Government policy) “flies in the face of all the evidence” – despite the fact that there still remains no evidence in the public domain.

At no point did Baldwin reference any evidence, or explain why the Treasury, the Bank of England, and UK Financial Investments have failed to release any evidence so far.

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Another point made by Baldwin was that the German banking system also needed £70 billion worth of support during the financial crisis – conveniently neglecting to mention that this was support was for large shareholder banks and the Landesbanken, rather than the German Sparkassen which many MPs were advocating in favour of.

In the end, Baldwin was reduced to parroting tired Government soundbites about the “long term economic plan,” ignoring substantial evidence and arguments that show long term economic planning is best served by a diversity of banking types.

In closing, Shadow City Minister Richard Burgon gave an impassioned speech – his first at the dispatch box –urging a reversal of Government policy.

“We do not accept that the case has been made to sell the bank off now—at significant loss to the taxpayer,” he said.

“And that is why we support a full, independent review of all the options before further shares are sold.”

If the Shadow City Minister’s statements can be translated into official policy of Her Majesty’s Opposition, then Osborne may finally be forced to answer his critics in person – with the Government’s short-sighted and un-evidenced RBS policy coming under ever increasing strain as a result.

The full debate transcript can be read here

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