Let our banks compete

            The government believes that competition drives innovation, lower prices and better service. They run a Competition Authority to encourage and enforce  more of it. They are even trying to introduce it gently into public service areas that have not enjoyed much of  it, like water and healthcare.

               When it comes to banking, an area where we are meant to be world leaders, we have precious little competition. We have four main banks. Two of those have substantial taxpayer shareholdings, and have received collosal amounts of taxpayers money to keep them going. British industry and wider business spends much of their time complaining that these banks do not give them the service they need, the loans they require or the prices they can afford.  The banks have been heavily regulated, but not in a way which stopped two of them getting into financial difficulty. Today they are heavily regulated in a way which limits their ability to lend more to fuel a faster economic recovery.

                  The banking industry needs a substantial dose of competition. That would raise its service levels, get it back into friendlier contact with the wider business community, and lead to innovative offers. There is considerable thought going on in Parliament about just how this can be done.

                  I am not going to repeat the details of my proposed split up of RBS that has appeared on this site before. We could create say three sound competing banks out of RBS and sell them to the private sector. Dr Cable has emerged as a supporter of an RBS break-up, though he wants a different version from mine. There is one additional advantage from this scheme that I have not mentioned before before. The new banks need not take with them any of the accumulated tax losses. From the first day they make an overall profit they would then contribute tax revenue to the government, a welcome improvement on the current position where the weak banks  are unlikely to pay tax for several years.

                    Andrea Leadsom is proposing that each UK clearing bank be required to establish full bank account portability. Everyone’s bank account under this scheme would rest with the current bank in a way which allowed the whole account with all its Direct Debits , income and spending arrangements to stay in place and to be transferred as a working whole to a new bank when you wish to switch. Such a system of bank account portability would tackle one of the main reasons why many people today do not move their accounts, because they fear all the complications of having to set up everything again from scratch.

                    Several of us are proposing that the barriers for entry into banking be lowered. Some who have looked into the possibility of setting up a new small bank have been put off by the very high costs imposed by regulators before they can get started. If you have to construct a unique banking model at great expense, have to hire staff and Directors and establish premises before you can gain a licence it is a large barrier to entry which only the very rich and persistent will overcome. It appears to be too difficult and too costly to get a banking licence in the UK, protecting the incumbents more than is desirable.


  1. lifelogic
    March 8, 2012

    Anything that get loans to sound businesses and more competition is welcome. Loans for property developments, commercial property and businesses are very hard to obtain at all at sensible levels and rates. The banks (all of them) are still pulling money back from sound businesses and holding it back hugely. They blame the new Basel regulations forcing them to reduce lending. They should also blame the anti business government for making these loans more risky. But even very low risks loan are hard to find. (The government loan guarantee schemes seem to be largely a mirage have any actually been made?).

    I see that Cameron is staring in a political party broadcast. He start by saying he wants to see better transparency on how our taxes are spent. Will this not just make everyone very very angry? Most surely already know it is spent on pointless wars, transfers to the PIGS, payments to the EU, green energy subsidy nonsense, transfers to the feckless, PR gimmicks and lots of over paid & pensioned state sector workers doing little of any use.

    He then goes on to stress the importance of politicians delivering what they promised. Is he making some sort of satirical joke against himself?

    What happened to his EU promises, the £1M IHT threshold, the promise to make the government pro-business, to cut regulation, a bonfire of red tape, cut the deficit, get growth, cut QUANGO’s and all the rest?

    1. lifelogic
      March 8, 2012

      Sorry I meant “Cameron is starring in ….. not staring in”

    2. JimF
      March 8, 2012

      Re Cameron – he’s working on the basis that if you say something enough times and believe it yourself it has to be true-soap powder salesmen could learn from him…
      Re Banks – do we get the feeling any radical measures are being indefinitely delayed? If there was a real intention to break up the banks it would already have been started. Meantime the average punter pays twice – through the government giving banks cheap loans from his taxes and paying the banks a hefty margin on lending him effectively that same cash.

    3. lifelogic
      March 8, 2012

      On banking competition and the lending market can anyone explain why unsecured personal loans from Tesco for example are now cheaper than well secured much larger property development and investment loans, perhaps borrowing only 40%-50% of good security value. These must surely present a far lower risk than unsecured lending. The borrowers are often a lower risk than most of the banks are on any rational assessment.

      Something is surely distorting the market, perhaps bad banking regulations are causing these anomalies? Certainly there is plenty of money to be made in low risk secured lending at the moment – if you can get past all the regulatory costs and actually have funds to lend.

      1. lifelogic
        March 8, 2012

        Perhaps more to the point, even at high margins and fees why will the banks often refuse to lend above 40%/50% of good property values but are still prepared to lend elsewhere totally unsecured at lower rates.

        1. Bazman
          March 8, 2012

          They suspect a housing crash. The housing market does seem to be walking on air. A recession without a housing crash? The interest rate are on the up as a barometer.

      2. lifelogic
        March 8, 2012

        The huge over payment of top bankers (relative to the difficulty of doing the job) is a very clear sign of a distorted non functioning market. Just as it is in the legal profession and the BBC. If people are overpaid hugely the market is usually not working well. Exceptions are in things like sports and acting where it is either the star or it is not. Hester could be replaced by 10 people, probably of very similar ability to him each on £150K each. Rooney or Emma Watson cannot.

      3. Mark
        March 8, 2012

        Property is bubble priced.

        1. lifelogic
          March 10, 2012

          I do not think so it is well supported by rents in London with 5% + yields and rents are growing, population is growing & building costs are growing and land is short.

    4. Graham
      March 8, 2012


    5. libertarian
      March 8, 2012

      Excellent and thoroughly correct post

    6. Bazman
      March 8, 2012

      The banks blame everyone and anyone except themselves.

  2. Antisthenes
    March 8, 2012

    Nothing to fault your thinking on this. You have hit squarely on the head the problem of lack of competition and choice in the banking industry. This however extends to many more areas of the economy as price and regulation is stopping newcomers from entering into markets and is making many of those in the markets close down or amalgamate. Everyone fumes against corporatism and rightly so because of government policies creating an environment where only the largest and richest can survive competition is reduced. This leads to poor customer service, value and quality if not reversed then the future will see the total end of free market capitalism and the rise of monopolistic capitalism.

  3. A Different Simon
    March 8, 2012

    John ,

    I agree with everything you are asking for but must question your first paragraph .

    ” The government believes that competition drives innovation, lower prices and better service. They run a Competition Authority to encourage and enforce more of it.”

    Almost any time the Govt gets interferes with a market it is to protect the status quo and stifle competition .

    Just look at Ofgem , does anyone really think they are trying to promote a market in gas and electricity as their acronym name suggests ?

    Or are they , with DECC , trying to make energy is as expensive as possible so renewables and nuclear don’t look so expensive and Centrica and Gazprom are not threatened by new entrants in the gas market ?

    Reply: I agree there are imperfections!

    1. lifelogic
      March 8, 2012

      Regulators often get far too close to those they regulate and are often taken in by them. After all they do not really care how well they regulate – so long as they are well paid and pensioned for the job.

    2. A Different Simon
      March 8, 2012

      John ,

      It is a problem when the regulator considers it’s job is to maintain high prices to stimulate the renewables industry rather than seek low prices for the consumer .

      How can it be that the regulator does not bat an eyelid when (named company) overstate the wholesale cost of gas by over 25% in order to justify their retail prices ?

      Reply: The company would probably argue it was not overstating the costs. An individual company may have a lot of gas on long term contract purchase.

    3. Mark
      March 8, 2012

      Ed Miliband changed the primary purpose of OFGEM, which is now to support the green agenda. He enshrined that in law:


  4. zorro
    March 8, 2012

    They are not even trying to hide the contempt in which they hold the electorate. Ministers and senior civil servants see themselves as an elite in the style of the EU – totally unaccountable’ hiring proven incompetents to lead HMRC amongst others. It must be clear to all though that this is not really incompetence but that there is a method to their madness and a political aim to deliver. Yesterday’s post showed us an insight into our future unless it is sorted out. Cable’s British Investment Bank wouldn’t work. Unsurprisingly, there was no mention of competition. He was right about vision though, and Cameron has lived up to my worst fears…all PR and absolutely no substance. He is similar to what I see at work – young inexperienced directors running amok changing for change’s sake whilst destroying everything which actually works!


  5. Paul Danon
    March 8, 2012

    Banks should also be allowed to fail so we know that we’re not depositing our money in Fort Knox. BTW, it’s Leadsom.

    1. uanime5
      March 8, 2012

      Any political party that supported this would be destroyed at the next election., due to the negative public backlash

      1. Neil Craig
        March 9, 2012

        Me5 once again this is a claim for which you produce no evidence. While your normal tactic is demand ever more evidence from anybody else you virtually never produce any yourself. The only exception being when you do and your “facts” prove to be invented.

  6. Richard
    March 8, 2012

    Thank you for yet another excellent article. I agree with all you say.
    Competition in the banking is desperately needed and in other areas of financial services, like the insurance industry.
    As long as we can get accross the idea that some may fail and will not be bailed out by Governments.
    With hindsight, it was a mistake to allow building societies to merge and to be absorbed into large banks and an even bigger mistake to bail out the failed banks.

  7. Robert K
    March 8, 2012

    Your last point is extremely important. Heavy regulation always plays into the hands of the big established players because they can afford the armies of compliance officers and regulatory supervisors they have to employ. If you reduce the regulation, smaller players can compete and a more diverse industry will be encouraged.
    I absolutely back up your plan to break up the state-owned banks – why isn’t the government moving faster on this?

  8. Ralph Musgrave
    March 8, 2012

    Not only is there not much competition between banks: the entire banking industry is heavily subsidised. According to Andrew Haldane of the Bank of England, the too big to fail implicit subsidy that banks get substantially exceeds their total profits. See 3rd paragraph under the heading “Implicit subsidies” here:


  9. Richard1
    March 8, 2012

    I spoke this a.m. to a Scandinavian businessman who is opening up a store in the UK (for the first time). He has been astonished at the bureaucracy & said ‘opening a bank account in the UK is more difficult than in the rest of the world combined’. ‘I thought you had a Conservative Government?’ he said. Not really I told him. Cable should either do something to free up business in the UK or be replaced.

    1. A Different Simon
      March 8, 2012

      Additional bureaucracy or legislation is always done under the pretence of a plausible justification .

      Eg knee jerk hand gun control because a madman decides to use a gun rather than a car .
      Counteracting money laundering , the war on terror , that filling out a SORN will make any difference to someone who knows they are driving without insurance , calls to reduce alcohol limits in response someone being caught six times over the limit , protecting “vulnerable” private investors , sharing medical data with insurance companies and Pharma’s to improve services .

      What reason will be given when we are told cash is being replaced with plastic ?

      How easily are liberties are taken away .

    2. forthurst
      March 8, 2012

      ‘opening a bank account in the UK is more difficult than in the rest of the world combined’.

      It is to prevent money laundering except when a ‘Russian Oligarch’ wishes to buy a nice house, presumably.

      1. Martyn
        March 8, 2012

        As ever, the money-laundering regs hit ordinary people worst of all. I have been with the same bank for 25 years and known to most of the tellers, but on going in to pay in a chunk of cash was asked to prove my identity. I said, but you know me, we have often spoken conducting business. Ah, but I have to ask for proof of your identity, now.
        Went to change my car a few years back. Agreed the partex etc and said to the man, I will bring the balance in cash to collect the car. You can’t do that, he said, there is a limit (£2k?) on how much cash I can take, it will have to be a cheque.
        We are ruled by mad people who are utterly remote from the real world that the rest of us live in. Aaarrrggghhhh!

  10. Kevin Dabson
    March 8, 2012

    Interestingly, I recently watched the BoE m.p.c. members before the treasury select commitee with respect to the last inflation report. This was on the parliament TV’s webcast.

    After the M.P.C. members like the Governor received criticism by politicians like Jesse Norman and others about directly helping with SME lending, and the BoE not buying anything other than assets or corporate bonds under it’s QE program, I am starting to take the view that the banking industry will not allow it or they (the BoE) do not want to rock the boat.

    Reading between the lines, and the governors insistence that he is not mandated to do this – hinting at political legislation needed throughout, and also making the point that the state owned banks could be used, it appears to me that the BoE does not want involved, and the politicians will not implement the legislation to help SMEs for a reason.

    Some politicians kept negating his views and continued to blame him. He also said he had suggested/supplied details of a program to help with SME lending to the previous government. Again no action.

    The Governor also said that the previous chancellor told the BoE _only_ to buy assets or bonds(gilts). Also, Osbourne has not changed/touched this for a reason, I suspect like the RBS problem.

    Is this the govt backing down to the banks with this ? like bonuses ? – Not that I have a problem with banker bonuses even remotely (an irrelevance in my opinion), but much more importantly the economy does need the lending and maybe some different types of banks.

    On a different issue, it is known the banks never liked the Loan Guarentee Scheme for SMEs. My father and some of his business friends got these and were aware the banks did not like the LGS many years ago.

    Has Credit Easing fizzled away too ???

    Maybe I am reading too much into this, but would be interested to hear your views John.

    Replt: The banks co-operated with the lending scheme. Credit Easing is coming soon.

  11. oldtimer
    March 8, 2012

    The bank portability idea sounds a very good idea. It is to be hoped that someone will take it up and make it happen. I faced this problem when I decided to dump NatWest following the RBS crash and burn, after the best part of a lifetime with NatWest. I switched to HSBC, who seemed to me to be a much better managed, better financed bank. It was a complicated business.

    Concerning the banks reluctance to lend, regulatory requirements for higher capital ratios obviously matter. But I also wonder if the prospect of rising interest rates and the ending of QE is also inhibiting them. If you, as a banker, expect interest rates to rise, the economy at best to stagger on, that more reliance will have to placed on a weak wholesale market and that the cost of attracting retail depositers can only go up then there will be a natural reluctance to commit too much lending too far ahead too soon. The appeal of a cautious wait and see approach sounds attractive. Is this a reasonable conclusion to make?

  12. English Pensioner
    March 8, 2012

    Both Tesco and Sainsburys have credit cards, savings accounts and foreign currency exchange facilities and I believe are now talking of current accounts, so the time will no doubt come when they have a fully-fledged banks in all their supermarkets giving the full range of services.
    Now In no fan of the major supermarkets as I think they are getting too big, but generally they do give good service and are good at dealing with customer complaints. A bank in every supermarket would put our retail banks under the same pressures to compete as other High Street businesses and force them to provide customer service.
    Perhaps this is the way forward.

  13. Chris
    March 8, 2012

    I couldn`t agree more. It is glaringly obvious that we need more, possibly smaller, banks who are customer focused. But when is it all going to happen?

  14. Nick
    March 8, 2012

    ersion from mine. There is one additional advantage from this scheme that I have not mentioned before befopre. The new banks need not take with them any of the accumulated tax losses.


    So that leaves the losses with the government.

    How many more billions is that on the state debt?

    Or is it going to be dealt with in the same way as most of the other debts, hidden like Bernie Maddoff off the books?

    Reply: Tax losses are an asset, not a liability, as they lower future tax impositions! It is good news they stay with the state.

    1. zorro
      March 8, 2012

      John, this might seem counter-intuitive. It would be good to explain how this works in practice to those who are unaccustomed with aspect of profit/loss, as I have heard others who worry about the state being saddled with ‘debts’ as opposed to ‘tax losses’ with the breaking up of RBS. It might help the argument gain more traction, notwithstanding the fact that any new banks would be starting with clean sheets and should be able to make some quick profits.


    2. Mark
      March 9, 2012

      The State may sell impaired assets along with associated tax losses though, just as a business would.

  15. Andy H
    March 8, 2012

    Clearly the banking industry is a closed shop. I mean how hard can it be to make a profit lending money out at a higher rate then you borrowed / received it?

    There should be much more Building Societies around to generate real competition in the market. And they should also be small enough to fail…

  16. BlackRaven
    March 8, 2012

    Banks effectively have two customers, depositors and borrowers. Depositors have taken a massive subsidy, being protected from the losses of their poor credit decisions. I fail to see why they need even more protection and special treatment.

    What evidence is there that there is not enough credit in the economy? I see plenty that there is not enough demand, however the only support for the view that there is not enough credit comes from businesses that should have greater equity rather than more leverage.

    1. lifelogic
      March 8, 2012

      You ask “What evidence is there that there is not enough credit in the economy?”

      When business find that the banks (nearly all of them) will now (due to new “we do not like to lend” restrictive rules) only offer good businesses 40% of the value of a property they used to happily lend you 75% on. Thus forcing you sell or to find the balance of say £650K by perhaps taking it from your other businesses. Thus leaving them short of working capital for expansion or having to put other investments & development on hold.

      1. BlackRaven
        March 8, 2012

        As an investor in both the corporate bond market and some local businesses I don’t think I can agree with that. Even a small struggling retailer is capable of borrowing 75% against their premises if they are valued properly, and in this case the business is already up to its eyeballs in supplier credit (over 120days!) and has falling sales and an overdraft.

        1. Bazman
          March 8, 2012

          The UK corporate sector is sitting on over £100 billion that is not invested in anything as they can’t think what to do with it. Small and medium businesses can’t get hold of money because the banks will not lend. So they are either denied by banks or awash with cash. Remind us again how the 50p rate tax cut will create jobs lifelogic? Ah! It will create jobs for high end estate agents and luxury car dealers. Maybe. A just cause I’m sure.

        2. lifelogic
          March 8, 2012

          not from rbs, natwest or hsbc they won’t.

  17. sm
    March 8, 2012

    I support this mild proposal.But it is not radical or likely to work quickly.
    It preserves the debt interest bearing credit money fractional model of banking.

    Is banking a rentiers paradise for those at the top? They charge to supply a product (loans and money) at virtually zero cost,then when they make a loss,get subsidy and continue to pay bonuses.

    In the US the states are creating numerous state or local mutual banks using the Bank of North Dakota as a model. In the UK?????

    Number portability is a good idea if you could enforce it.

    Some links
    A prominent professor says UK’s economic and financial model is a failure amid Chancellor George Osborne’s announcement that the country has run out of money

    The Secret of Oz – Winner, Best Docu of 2010 v.1.09.11 (you tube)

    The Money Masters-Full (you tube)


    For a more entertaining style for those that can handle it , watch Stacy & Max on the Keiser Report on RT.Imagine that with a slot on the BBC.

    “There is considerable thought going on in Parliament about just how this can be done.” I am not sure they even comprehend the scale of the problem- need to wait until the quality of subsidized facilities fall or tax exemptions are removed.

    We need new clean banks and we need to enable banks to be bypassed.
    e.g. funding circle or similar (why not give them a direct grant with QE money repayable in 1,2,3,4,5,10 years).

    1. zorro
      March 8, 2012

      I was going to mention the ‘North Dakota’ model of banking but you beat me to it! What the UK needs is a more responsive, localised banking arrangement which is targeted on investing in economic growth as opposed to giant bullies growing fat on lending/creating free money at usurious rates of interest to the general populace.


      1. sm
        March 13, 2012

        I only read it somewhere else..i only wish more would push it forward and take a little time to look at the benefits.

        Are our bankers and politicians in a pact of Mammon? We don’t need reminding DC is not JC, but dont you feel a little sick thinking about our current system?

        Where is our cleansing of the Temples? It strikes me (banking) as being a potential and continuing significant reason for divisive, economic and political/religious friction.

        We need to look very closely at the foundations of this ursury and consider full reserve banking and direct money creation by the state.

        Money can be created by the state , by tax cuts (eliminate NI) or direct infrastructure spending (Road,resovoirs,bridges). We do not need to create interest bearing debt. Taxes can be used to withdraw it.

        Capital v Labour , one is bailed the other is financially repressed and made to pay for the bailouts.

  18. Lindsay McDougall
    March 8, 2012

    Most regulation is designed to protect incumbents, particularly EU regulation. It isn’t – and never was – designed to protect customers.

  19. Neil Craig
    March 8, 2012

    Obviously if Cable gets his hands on the RBS funds his “directed investment” will go into “Gren” jobs where, as the ||Americans have seen, it will either be wasteexcd by incompetents or stolen by politically connected crooks.

    Tony Benn had this sort of investment fund in the 1970s. It lost money hand over fist and achieved nothing, as is the way with “investment” at political rather than economic direction. But at least Benn didn’t blow much of it on windmills. And he did not have the example of himself to show how it works in practice.

    If Cable really cared about providing investment opportunities he would want busines tax cuts and a few billion put into X-Prizes. Both of those work.

    1. lifelogic
      March 8, 2012

      Tony Benn still seems very proud of all the money he wasted on the Concorde project when he became aviation minister in 1968. The Treasury wanted to cancel it because of spiralling costs and the fact that the venture was clearly insane in financial terms.

      People always seem happy when spending, or rather wasting, others people’s money. All so that a few people could spent an hour or two sitting in a chair in New York rather than an hour or two more sitting on a chair on the plane and for political PR purposes.

      Rather like HS2 in fact.

      1. Conrad Jones (Cheam)
        March 8, 2012

        What do you call QE then – £325 Billion handed over to Banks – is that not a waste of money?

        At Least Tony Benn actually got something built for our money – it also proved to the rest of the World our engineering excellence.

        The Americans hated it because they didn’t have one and it made them look backward.

        1. Conrad Jones (Cheam)
          March 8, 2012


          You’re not an American by chance ?

          Ever worked for Boeing ?

          1. lifelogic
            March 9, 2012

            I am not American nor have I worked for Boeing but if I think something is economically pointless, I feel I should point it out. I would add manned space travel, indeed most space travel beyond earth’s orbit, most high speed trains, the Millennium Dome, green house bling and indeed most things the government has to subsidise to get it them off the ground.

            It is not clever to build something worth £1B for say £10B it is stupid and destroys real jobs. (I suppose it is clever to get someone to give you the money).

            There are better way of developing Velcro (and anyway it was not from the space program I understand – more by evolution and plant seeds I would have thought)

        2. lifelogic
          March 9, 2012

          Yes Benn got something built a had full of hugely expensive pointless planes perhaps with good engineering but it was rather like a wind turbine it just makes no economic sense.

          If you have lots of tax payers money it is easy to get something pointless built & with good engineering but why do it – it just makes people poorer? Rather like HS2, the Dome and the silly ugly sculpture at the jumped up school sports day in East London.

          1. Conrad Jones (Cheam)
            March 11, 2012


            I agree with you that the Millenium Dome was a waste of money. The Olympics is another waste of money – in my view. The estimated cost is now £11 billion and rising.

            I just feel that Concorde was a productive and creative use of Government funds and could (and did) provide long term employment and helped with overseas trade. In my humble opinion, it was another reason to be proud of feeling British.

            Hawker Harrier Jump Jets was another, now only flown by the American Armed Forces. I remember walking through a Factory in Kingston (Surrey) which manufactured Hawker Harrier fuselage components in the early eighties- this factory has been knocked down and replaced with a Housing Estate. Somewhat symbolic of our economy.

      2. Neil Craig
        March 8, 2012

        I have some time Concorde even if it cost us £1 billion (back when that was a lot of money).

        An X-Prize would have done it far better. A recent adcademic stody of a century worth of prizes put up by the Royal Agricultutal Society showed that, even for winners, they only covered about 30% of the cost of development. Thus they are a spur to innovation (or as one Victorian industrialist complained “an undue stimulus to innovation”) but nobody is going to develop something unless it is promarily going to be commercial.

        Thus an X-Prize of £300 million (then) for a commercial supersonic plane would either have produced no winner, thus costing nothing, or a truly commercial jet. In fact if the prize had been kept going (& probably updated with inflation) I have no real doubt that such a commercially successful British supersonic jet, even if not developed in the 60s or 70s, would be flying now.

        1. lifelogic
          March 9, 2012

          £1Billion sensibly invested in 1976? in say r&d in medicine could have produced perhaps a £30 Billion +company today with thousands employed if real jobs. As it is we have a hand full of old loss making plane bits and perhaps a couple of million people who got to New York a tiny bit faster (and also sadly 113 killed). Many jobs also destroyed by the diversion of taxes just as now with wind farms and HS2.

          1. APL
            March 10, 2012

            lifelogic: “As it is we have a hand full of old loss making plane bits and perhaps a couple of million people who got to New York a tiny bit faster (and also sadly 113 killed).”

            As to the death toll, Concorde had an exemplary safety record. Just because the French Government run Airline tried to economize on safety, isn’t really a valid criticism of Concord’s safety record.

            The safety mantra is just an excuse for not doing a thing. Which has been rolled out time and again ad nauseum. The same philosophy would have us all still employing a man to walk in front of our horseless vehicle with a red flag.

            The argument in favor of X-prizes is not that it fosters projects that you disapprove of, although by the sound of it that might be a good thing, but that it incentives projects that you probably wouldn’t have even thought of and at a minimum cost to the tax payer.

            With an X-Prize, a economic supersonic passenger aircraft may have been build at just the cost to the tax payer of the value of the prize, the development and production costs falling to the private sector.

            OR, it wouldn’t have been built then.

            But instead we may have had to wait thirty years before Richard Branson or someone else bought into a viable sub orbital transport concept instead.

          2. lifelogic
            March 10, 2012

            I agree safety can be an excuse for inaction but 50,000 flights with one crash killing all. Someone working on Concord, full time, for say 10 years had perhaps a 1% chance of being on the doomed one. Rather too low odds I think.

            Interestingly my friend is married to a Frenchman. When she told her husband of the crash he went into overdrive on the lack of UK maintenance standards – before being told it was an Air France plane.

    2. Bob
      March 8, 2012

      George Osborne 2009
      ” QE is last resort of desperate governments”


  20. outsider
    March 8, 2012

    Dear Mr Redwood, I find myself increasingly sceptical about your agenda for banks. What is the purpose of your proposals: to promote SME lending, to sell Natwest to foreign buyers or merely to cut the National debt under the mantra of competition?

    You talk about four main banks but ignore Santander, National Australia Bank, the enlarged Co-op and Virgin, just the sort of high street banks you say are needed for retail competition, let alone the various internet or telephone banks. NAB and Co-op do lend to SMEs, though Santander has shown no inclination to do so.

    You complain about the lack of banking licences, yet as I understand it more banks have licences in the UK than almost anywhere else in the world, including Morgan, Citi, BoA and Goldman Sachs. There is no lack of potential competition, should they wish to lend to UK business.

    Your party, whether in government or opposition, was not famous for opposing bank mergers (even of the former TSB) and did nothing to stop the demise of a merchant bank sector that did invest in business. Yet you now question the property rights of minority RBS shareholders. Mr Putin would be proud.

    If the Government wished to boost lending to small firms it could easily do so without interference with the private sector or massive fees to investment banks. For instance, you could easily double the £100 billion invested with the National Savings Bank ( instead of running it down) and lend the money at market rates to organisations with expertise, such as banks and 3i, earmarked for small business loans over and above anything in in the “Merlin” agreement. You could also add the cash flow from the profitable state-owned “bad bank” as its mortgages mature.

    By contrast, you could not force any “new” private sector banks to lend all their money to SMEs or business generally. To be competitive in the capital market they would be more likely to adopt the low-cost model used, for instance, by Santander.
    And if Mr Cable were to turn Natwest into a high street business bank, why would consumers put their money with a bank that did not offer retail loans and mortgages? The business bank would end up reliant on flighty wholesale deposits, like Northern Rock, making it extremely risky.

    These City think-tank ideas are all very well but it is the practicalities that count.

    1. Kevin Dabson
      March 8, 2012

      Just want to answer a few of your questions/statements above.

      Para 1, Natwest needs to be broken off as it’s a retail bank, which can run a proper deposit base (without money be syphoned-off into investment banking or being part off a loss making RBS) and can therefore loan more money into the real economy. And supply more competition in the market place. We need a primary budget surplus to stop the national/sovereign debt increasing but that’s a govt debt issue.

      Para 2, Those banks are tiny in comparision to RBS.

      Para 3, Incorrect. I remember watching a treasury select committee with either Paul Tucker or Hector Sants in front of them. It was said the Bank of England had not issued a bank license for over a 100 years! One of the aforementioned was helping a new bank with the process, as they found it very difficult and were refining it to make it easier. I think it was Tesco or Metro or someone like that.

      Forget about Investment Banks. They are probably regulated differently. Also I suspect foreign banks/companies can just re-use the existing bank licenses. Some off these were old building societies etc.

      Para 4, Fair enough. Modern Investmant banks are not like the old traditional ones. Some say modern ones are not investment banks at all!

      Para 5, Not so sure you could just double £100 Billion in a National savings bank. I have heard of 3i, but not sure why it left the market.

      Para 6, You could probably run a retail bank with seperate branches and brand names for business and retail. Or you could run a narrow-bank business bank which could also cater for large corporate customers to help, or it could rely on commercial real estate instead.

      Getting rid of the personal loans and mortgages in particular (with huge asset price inflation) from a bank seems a good idea in some ways for going concerns.

      This country fails to elevate smaller companies into mid size ones the way the US seems to be able to do. Maybe it’s venture capital or other means. The US has a strange retail bank setup I tell you!. Noticed that living there.

      Best Regards

  21. Conrad Jones (Cheam)
    March 8, 2012

    Mr Redwood,

    Bank Account Portability

    “Such a system of bank account portability would tackle one of the main reasons why many people today do not move their accounts, because they fear all the complications of having to set up everything again from scratch.”

    I have switched two accounts recently and all Direct Debits and Standing Orders were automatically trasnferred across. I did have to authorise a couple of direct debits with the second account, but it was generally a very easy process.

    It is misleading to say that it is a difficult process. It is not.

  22. Conrad Jones (Cheam)
    March 8, 2012

    Mr Redwood,

    “If you have to construct a unique banking model at great expense, have to hire staff and Directors and establish premises before you can gain a licence it is a large barrier to entry which only the very rich and persistent will overcome. It appears to be to difficult and too costly to get a banking licence in the UK, protecting the incumbents more than is desirable.”

    Would a small new Bank be at a disadvantage through the difficulty of getting a licesne or is it more to do with the fact that a Small Bank requires much larger Capital Reserves than a Larger Bank as a many of the transactions of a Larger Bank are cancelled out each night due to the fact that they are transfers from between two Customers of the same Bank, and so there is less need to use the Reserve Account at the Bank of England to carry out the days Transfers. A small bank is much more likely to need to use the Reserve Account as many of it’s transactions will be with Customers sending or receiving money from Larger Banks.

    You still are avoiding the role played by Private Banks in Creating Bank Deposits (currency). After the Maastricht Treaty, which restricted Nations from creating money and helped accelerate Banks ability to create money, you of all people should realise the affects of how unregulated the Banks had been up until the 2007/8 Financial Crisis.

    Allowing Banks to create even more debt money IS NOT THE SOLUTION.

    You cannot argue against the Maastricht Treaty and also not mention Money Creation – it’s front and centre to the current Global Debt Problem – espescially in Europe – thanks in part to John Major and Norman Lamont’s Maastricht Treaty signing sham in 1992.

  23. BobE
    March 8, 2012

    Remploy, set up after the war to care for disabled soldiers, to give them respect and work has been destroyed by this coalition. So that the disabled vote as well as the female driver vote lost. With a disafected youth you are giving the election to liebour.

    1. Conrad Jones (Cheam)
      March 8, 2012

      Only an idiot would vote Labour.

      Tony Blair now works for J P Morgan
      Ruth Kelly now works for HSBC.

      David Milliband’s recent comments about Vladimir Putin:
      “Vladimir Putin is a “ruthless” dictator whose days are numbered”

      The former foreign secretary warned it would be wrong to underestimate the “intelligent” leader but predicted he
      will not survive a six-year term at the Kremlin.”

      This is the quality of diplomacy from a former Foreighn Secretary – Labour style. Playground name calling is not a skill that David Milliband should advertise.

      Is it jealously of a former British Government Minister that causes such an outburst. Our ‘First Past the Post’ system ensures that we will never get a Prime Minister elected with anything like a Majority vote.

      All we get from our lot of MPs is a move for more and more aggression and more and more War.

      John McCain (personal attack on him removed-ed)

      1. Conrad Jones (Cheam)
        March 11, 2012

        Thank you for printing most of my comment.

        I’m not going to repeat my persaonal attack on John McCain as it will be removed and I respect your decision on that.

        I do however, believe it is justified as John McCain seems intent on stirring up War fever intent on sending yet more young Americans to die, and cost ever more billions of Dollars to the U.S. Taxpayer – which will end up in the Bank Accounts of Arms Manufacturers.

        If John McCain wants a War so badly then he should rejoin the Armed Services and put him self up for immediate comabt duties. I would respect anyone who put their own life and limb where their mouth is.

        Reply: I suspect Mr McCain would say he does not wish Americans to die, and believes a pre-emptive war will make the US safer.

        1. Conrad Jones (Cheam)
          March 13, 2012

          Abu Graib

          “McCain once sponsored legislation to ban U.S. military personnel from using torture as an interrogation tactic. But this year [2008], McCain changed his position and voted against an anti-torture amendment to the intelligence authorization bill.”

          1. Conrad Jones (Cheam)
            March 13, 2012

            I would suggest that pre-emptive strikes and torture does not make Americans safer.

            John McCain has argued that Torture does not get reliable information as the people who are being tortured tend to say what ever the Torturers want to hear inorder to eleviate their suffering. This has not prevented him from voting against an anti-torture bill. He therefore has voted in favour of Torture.

    2. zorro
      March 8, 2012

      Yes, a shoddy decision based on the fact that the (same) money will allegedly be spent more effectively on disabled people as a whole and supposedly create another 8,000 jobs. Hold on, what is that pink thing flying outside my window…..?


  24. Leslie Singleton
    March 8, 2012

    If tax losses not carried on sale does not this mean smaller sales receipts so preventing paying down our debts ASAP?

    Reply: We are nowhere near being able to pay down our debts. If we create good banks out of RBS they will produce some cash receipts to cut the deficit.

  25. Tony Baverstock
    March 8, 2012

    Mr Redwood

    The problem you suggest is:

    “Britain’s bank services to small/medium enterprises and personal customers is currently concentrated in just four big banks…the competitive incentive to provide a better and cheaper service is just not there.”

    While I agree there is limited competition before considering breaking up a bank you also need to consider:

    Is the lack of competition in the UK small/medium business, and personal sector due to some monopolistic behaviour by the banks to exclude other competitors, or that the current nature of the market is so competitive that new entrants cannot see how they can make a profit?

    Can I suggest before starting to make radical changes to the market a Government needs to be vary sure of the position.

    While I cannot claim to have an absolute answer considers the following:

    1. Domestic retail and small business activity is not very profitable.
    2. Servicing such business tends to be expensive:
    a. Branches are expensive to own and run.
    b. The retail market is dominated by customers who want free banking, but also, cash machines, DD, internet access, etc, etc.
    3. Other market entrants such as Tesco and Sainsbury’s have limited the types of product they offer.
    4. New banks such as Egg grew very quickly but never made money and have now disappeared.
    5. It the past other banks have suggested they wanted to compete in the UK retail and small business market. There is nothing to stop them expending but none have.
    6. The only bank which threatened the big 4 was Northern Rock!!!

    Breaking up RBS to create businesses which then failed would not be a good return for our investment.

    One other point you mention is Andrea Leadsom writing on moving current accounts. I am afraid despite being on the Treasury Select Committee she has no idea how the Direct Debit system works (this is the biggest obstacle to moving an account) and her solution is neither practical or possibly legal!!!

  26. Leslie Singleton
    March 8, 2012

    Thanks for reply. I am but dust beneath thy chariot wheels but I cannot agree about the tax losses. We need to get the peak debt not just down but down quickly. I am all in favour of splitting and selling off the likes of RBS and turning them in to “good” (ie ordinary) banks but just as so often commercially selling the tax losses makes sense to maximise upfront receipts. Didn’t somebody say something like, It is not given to man to see what lies dimly at a distance, he must do what lies clearly at hand.

  27. Leslie Singleton
    March 8, 2012

    I agree with you that translating a Current Account to another Bank can be a big deal. Conrad Jones makes the point that certain payments away such as Direct Debits, at least from certain banks, can be transferred easily enough but payments out are not the problem in that all the instrauctions are in one place. It is receipts that are the problem, one type that might give especial trouble, certainly if there enough of them, is say a pension or investment receipt from abroad. In such cases clearly it is necessary to advise the sources of the receipts (abroad of course with poor English perhaps) of your new Account Details and even then one must get the timing right–if not done happily the receipt can be bounced back and it can be a real pain getting everything back hunky-dory.

  28. Bazman
    March 8, 2012

    Little competition in banking? Funny how bankers are constantly threatening to leave the country to work in other banks. Seems to be competition to run them. What does that tell you? What excellent public servants they are? Think your water bills/rates are expensive? Just wait until privatistion takes place. Will I enjoy more expensive water and healthcare? There will be less of both for sure.

    Reply: Water is privatised and the NHS will not be

    1. APL
      March 10, 2012

      Bazman: “What excellent public servants they are?”

      Of course private sector bank employees are not public servants.

      And the ones that have been bought by the public sector should be fired and their organizations shut down.

      I thought there were laws against trading while insolvent?

  29. Lindsay McDougall
    March 10, 2012

    What is the correct timing for selling RBS and Lloyds, whether split up or not? Mrs Thatcher’s ministers made a point of making state businesses more efficient before selling them off, so that they could get a better price for the shares. What worries me is the absence of contradiction from Conservatives when Vince Cable or another LibDem says that neither bank can be sold off in the forseeable future. My own instinct is to sell them as soon as possible but I wish I had better knowledge. Stephen Hester originally said that he needed 5 years to turn RBS round. Three of these years have passed and a thorough progress report would be welome.

    Reply: The private sector normally transformed productivity and profitability post sale. Both RBS and LLoyds shareds are still well below the taxpayers purchase price which is why they are not currently trying to sell them off.

  30. colin
    March 13, 2012

    I responded on 26th February to your blog on 24th February about RBS.I referred you to a speech given in the Lords by Lord James of Blackheath.To this day my comment is still awaiting moderation.Why?

    Reply: Posting is delayed if a) there are links to sites that need checking b) there are personal allegations or corporate allegations without evidence c) if language used might get the poster into trouble

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