The case for a people’s bank

Bank staff are on the march:

Finance workers pressed the Government to make sure the multi-billion pound bail out of banks protected their wages and jobs rather than executive bonuses.

Around 100 workers from banks including Lloyds TSB and HBOS lobbied MPs in Parliament and were meeting Chief Secretary to the Treasury Yvette Cooper calling for jobs and conditions to be protected.

The demonstration was organised by Unite which fears banking jobs will be lost as a result of the financial crisis.

The union published a so-called Social Contract, including ideas on how the finance sector should be reformed and an overhaul of regulations.

The workers wore T-shirts bearing the slogan Stop Bankers’ Greed and held up banners outside Parliament.

Derek Simpson, joint leader of Unite, said workers were facing insecurity through no fault of their own.

“We are launching this charter to raise concerns about the future job prospects of ordinary bank workers who are not well paid and who are not to blame for the current financial crisis.

“We don’t think these workers should pay the price for the bail out.

“One of the problems has been the lack of regulation which has allowed this crisis to develop.

“There is a huge disparity between the wages and bonuses of chief executives and the pay of an average bank worker which is just £15,000.”

Simpson also pointed out that with the decades of deindustrialisation, many communities were dependent upon the financial sector for employment:

“Workers in the financial services industry are not the culprits of the credit crunch and we are not prepared to allow them to become the victims. The taxpayer must now get firm assurances that the financial lifeline extended to these large organisations will be used to protect jobs and the public. It is not acceptable for the government to socialise the risk without allowing the wider society to capitalise on the rewards in the finance industry.”

The Unite Social Contract states:

1. Recognition of Unite as a key stakeholder in the future of the financial services industry.
2. To ensure the employment security of employees in the finance sector.
3. To protect and improve the terms and conditions of employees, including pension arrangements
4. End the remuneration packages of senior executives which reward short-termism and irresponsible risk taking.
5. Overhaul of the regulatory structures of the financial services sector to include trade union involvement in order to enhance the accountability of finance institutions.

The general secretary of the Communications Workers Union writes in Tribune:

Billy Hayes says the failure of private finance is a compelling argument to recreate Girobank and boost the Post Office network

“GREED is good” seems distinctly perverse now. Financial crisis and recession are tearing up the received wisdom. The policies of Thatcherism and Reaganism have brought about the greatest economic crash since 1929. Yesterday’s victors are today’s culprits.

The new debate for Labour has to be how to restart the economy and protect those most threatened by the recession. This is the only route to re-election now.

The collapse of the private banking sector ought to alert Government to the viability of a publicly-owned banking industry. The last publicly-owned bank, Girobank, was privatised by the Tories. It was subsequently taken over by Alliance and Leicester, which in turn has been swallowed by Abbey/Santander.

So the success of Thatcher-ism in this field has seen a publicly-owned bank end up as the property of a private Spanish one. Meanwhile, Britain’s private banks have received £37 billion of public money to recapitalise their failure.

We have witnessed a retreat and consolidation of private banking services offered to citizens. According to figures from Community Banking Partnership, Britain has 180 bank branches per one million inhabitants. In France, this figure is 435; in Italy 560; Germany 540; and Spain 940. The likely retrenchment among British banks following the crisis will make the issue of access even more pronounced.

This horror story should stand as a cautionary tale.

In these circumstances, the remaining network of more than 11,500 post office branches comes into focus. Here is a large retail network, of a publicly-owned company, which could be used to address both problems of financial exclusion and universal access.

This week marks the 40th anniversary of Girobank and it is time for Government to look at it again. And the Government should consider what future is there for the Post Office network.

In 2006, the House of Commons Treasury Select Committee heard evidence from the New Economic Foundation (NEF), the Campaign for Community Banking Services, Help the Aged and the National Housing Federation in support of establishing a universal service obligation in banking. While not dismissing this entirely, the committee was not persuaded of the need for legislation.

In its recent publication, Keeping Britain Posted, the nef found that there is still a problem of financial exclusion. The Post Office Card Account (POCA) provides a basic bank account for five million people. In comparison, private banks have provided a total of 1.97 million basic bank accounts. There are further two million adults in this country without any bank account.

Yet the Post Office’s provision of POCA is under serious threat. A Government announcement on the renewal of the POCA contract is due by the end of the year. If Royal Mail loses this in the tendering process, the impact will be dramatic. A further 3,000 post office branches would face closure.

There is some talk in management circles that the POCA contract may be split between Royal Mail and another provider. This would still result in closures, as any loss of work will cut deep into the narrow margins within which the Post Office operates.

Given that the Government is providing a subsidy to keep branches open, it is breathtaking that another department is considering removing work from these branches.

The Government needs to decide on a positive future for the Post Office network. Awarding the POCA replacement to the Post Office is an essential first step.

With a little imagination, the Government could establish, through the Post Office, a universal banking obligation and a peoples’ bank. Building on the POCA, the Government could ensure basic service charges that the poor pay are reduced directly by allowing service debits.

Energy and telecommunication companies charge customers money for not using direct debits. A publication by the Save the Children/Family Welfare Association estimated that financially excluded families pay an additional £1,000 a year as a result. An enhanced Post Office banking service could be a tool to overcome this. The people’s’ bank could also become a vehicle for promoting micro-credits and seed capital for the disadvantaged.

Private banks have no obligation to disclose their lending patterns. As a consequence, they cannot be a vehicle for the Government dispersal of small-scale capital start-ups.

Experience in countries such as Bangladesh and Venezuela shows that the effective deployment of small amounts of accessible credits can work wonders in poor communities. Whether it is used for retraining or small business development, small amounts of seed capital can make a huge difference in reducing poverty.

There are many such options for using a people’s bank in a progressive manner. The alternative is stark. The problem of financial exclusion and poverty are deepened by post office closures. The NEF’s report, The Last Post, shows how closures have had a negative impact on the local economy. Its study of Manchester indicated that a local post office added £310,546 a year to the area served.

So the Government must change its approach. A report published as far back as June 2000 by the Government’s own Performance and Innovation Unit outlined some good ideas. These included the promotion of local post offices as front offices for local and national government services.

In addition, the centralised model of Post Office governance is in conflict with the devolved character of recent Government policy. It is ridiculous that a central management board of the Post Office decides that 2,500 branches must close for no other reason than this number accords to the level of subvention offered by the Government.

That being the case, it is of no account to the board that local communities have no say in what postal services they are to be offered. In Scotland and Wales, for example, the devolved governments can only complain about decisions taken in London which dramatically affect the economic development of these nations.

The postal service is a unique combination of commercial and social necessities. It can best register the service required if it is genuinely demand-led. Local communities, including the large communities covered by devolved government, must be able to register their needs with Post Office management and the Government at Westminster.

Of course, there are forces pressing the Government against a progressive policy for Royal Mail and the Post Office network. The Hooper Report on the future of Royal Mail is due to be published soon. Although Richard Hooper’s team has not looked at the Post Office network in any detail, he has received submissions to break up Royal Mail and privatise all or part of it.

Such moves would be a breach of the commitment made by Labour to the electorate in its 2005 general election manifesto. There is no need for this. A people’s bank offers a comprehensive future for the Post Office network.

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Does BP stand for “bumper profits”?

Brown is willing to plead with the energy companies to cut their bills now that the price of oil has drastically slipped back, but is unwilling to threaten a windfall tax or even price controls. Perhaps he’s got too much on his mind trying to save the global capitalist system…

Where is the help?
(Tuesday 28 October 2008)

BP chief executive Tony Hayward must think that we are all mugs if he expects us to fall for his claim that his company’s record profits simply mean that BP is well placed to weather the raging storm of recession.

BP and the small group of oil transnationals that dominate the global market are not waging a battle for survival.

They are gorging themselves in a market distorted by speculation, making a mockery of government injunctions to tighten our belts.

While low-paid and hard-working civil servants, health staff and other public-service workers are told to accept pay settlements that are well below inflation, parasitic shareholders sit on their backsides while ever-higher dividends drop into their bank accounts.

BP dividend payments are 60 per cent higher than last year and Mr Hayward is determined that they should continue to grow, because he promised his shareholders that he would do so.

And he has been as good as his word. Whatever the movements in oil prices, BP has delivered massive profit and dividend increases.

BP is yet another former public corporation that was handed over to the private sector, delivering into shareholders’ pockets huge sums of money that could have been used for public benefit.

Millions of people in Britain have been hit by big rises in fuel bills and are worried about how they will be able to heat their homes this winter.

Increased fuel costs have also translated into higher food prices, which have an inordinate effect on pensioners, the low-paid and the poor.

And, on top of that, the financial crisis brought on by the banks’ reckless gambling has resulted in a credit crunch that is causing great difficulties for people with mortgages.

The government has bailed out the banks, but it has no plans to bail out those who live at the sharp end of the crisis.

Where is the help for those who risk losing their homes, for those forced to choose between food and switching on gas and electric fires and for those facing short time or unemployment because of the recession?

Gordon Brown and Alistair Darling dithered for half a year before they nationalised Northern Rock.

They are dithering now over what to do in a situation where a small minority of society is living off the fat of the land and a greater number is wondering how to make ends meet.

New Labour has always resisted the idea that big business and the rich should pay their fair shares, as working people do, towards the cost of a civilised society.

It regards the tendency of the wealthy to employ tax consultants to minimise the amount of tax for which they are liable and to make use of offshore tax havens as understandable and somehow even laudable.

More and more people now understand that the financial burden that the rich refuse to bear has fallen on those least able to pay it and they are fed up to the back teeth with it.

Instead of making excuses for the wealthy and selfish, the government should call time on their antics and impose a windfall tax as a prelude to taking back the entire energy sector into public ownership.

Slump of all fears

The great inter-war slumps were not acts of God or of blind forces. They were the sure and certain result of the concentration of too much economic power in the hands of too few men (who) felt no responsibility to the nation. 

– from the 1945 Labour manifesto Let Us Face The Future

This week’s Socialist Worker answers some key questions on the crisis:

Can public spending solve the crisis?
Many economists and politicians – Gordon Brown included – are calling for major public spending projects to stave off the worst effects of the recession. This is sometimes dubbed a “Keynesian” solution.

Left wing economists are demanding public funds be spent on infrastructure projects such as schools, hospitals and public transport, or on measures to tackle climate change with an aim to improve society and create jobs.

But Brown’s vision of Keynesianism is very different to this. He is proposing to spend billions on replacing the Trident nuclear system, aircraft carriers, the Olympics and other such projects.

Socialists should welcome Keynesian policies only if they take power away from the rich and put it into the hands of the working class.

But ultimately we need to go further and replace capitalism with a system that operates in the interests of the majority.

There is also the question of who pays for this public spending – and for the bank bailouts.

The government doesn’t have the money, so it has to borrow it from the international capital markets.

This will lead to a budget deficit, which the government will look to solve by raising taxes or making public spending cuts, or doing both at the same time.

The borrowing also has knock-on effects in the global economy.

If governments are hoovering up all the available funds, it becomes more expensive for private companies to borrow money.

This could lead to more companies going bankrupt and more job losses, thereby deepening the recession.

Why is the ruling class divided over the solutions to the crisis?
Even limited talk of a “public works programme” has provoked a backlash from the neoliberal right.

Sixteen economists wrote a letter to the Sunday Telegraph last week attacking the government’s plans.

“Economic slowdowns are natural and necessary features of a market economy,” they wrote, warning that state spending would “stunt the private sector’s recovery once recession is past”.

They called for more tax cuts instead.

Their arguments reflect the wider ideological crisis in the ruling class, as their system comes crashing down around them.

Some worry that direct state intervention into the market could lead to ordinary people believing they could exert collective control over the economy.

Can cutting interest rates help?
Some left wing economists have proposed slashing interest rates as an emergency measure to stop the slide into recession.

They argue that a drastic cut in the interest rate will alleviate the worst effects of the recession on ordinary people.

It would lead to lower mortgage payments, they say, helping homeowners facing repossession.

And it would lower borrowing costs for businesses, preventing mass job losses as firms go under.

Cutting interest rates could well lead to these beneficial outcomes. But there is no guarantee that banks would pass on any rate cut to mortgage holders, or to the firms that owe them money.

Similarly, there is no guarantee that employers would not take advantage of cheaper borrowing costs and sack people anyway.

The US government has been cutting interest rates for a while now, but unemployment is still rising.

Japan pursued a policy of low interest rates in an attempt to get its economy out of stagnation.

But this had little effect – there was no investment as firms’ profits failed to recover.

Even advocates of emergency interest rate cuts admit that it would do nothing to solve the long term problem of the debt bubble in global financial markets.

The bursting of this bubble triggered the banking crisis.

Its existence is tied to a much more fundamental issue – the crisis of profitability across the capitalist system.

Profit rates in productive areas of the economy are low and declining, which is why investors turned to the financial sector in the first place.

Why are stock markets plunging again?
The stock markets were relatively calm immediately after the announcement of coordinated bank bailouts across the world. But last week they started plunging again.

The trigger for this latest rout was the dawning realisation that a global recession was inevitable.

It was accompanied by steep falls in the value of pounds and euros relative to the US dollar.

Britain is likely to be particularly badly hit by this recession.

Economic growth in this country has been centred on financial services, with the encouragement of New Labour.

But finance is at the centre of the current economic hurricane.

Some commentators have argued that the economies of the Far East, particularly China, can act as powerhouses that will pull capitalism out of its present crisis.

But now it looks as if the crisis will drag China and other Asian economies down too. Much of their growth has come from exporting goods to the West – so a slowdown in the West will hit their economies too.