In a speech at the University of London, Labour Party leader and wannabe Prime Minister Ed Miliband has said he wants to limit the amount of market share a bank can have in order to create two new competitors to the existing ‘big five’.
Miliband’s speech is so horribly full of contradiction it’s hard to know where to start. We should expect a socialist to favour marketplace regulation but his multiple reasons given for the move are otherwise and also contradict one another.
Miliband said: “We need a reckoning with our banks, not for retribution, but for reform to tackle the cost of living crisis in this country. Today I want to talk about the next stage of banking reform and it gets at what I think is one of the deepest problems in British banking, something that has been a problem for decades - too much power concentrated in too few hands. On day one of the next Labour government, we will ask the Competition and Markets Authority to report within six months on how to create at least two new sizeable and competitive banks to challenge the existing high street banks.”
Somewhere in the deep wretches of Miliband’s socialist brain is a belief that the perennial cost of living crisis (there is always a cost of living crisis with lefties) can be solved by some form of restructuring of the banking industry. The Leader of the Opposition though fails to grasp the concept that cost of living is determined by how much non-governmental work is actually performed.
He then says he will ask the Competition and Markets Authority to report on setting up two new banks. This must be sacrilege to some members of his party who see competition in business as the root of all evil and believe we’d all be better off if the government would run everything itself.
In reality the Labour leader’s move will simply make banking less efficient and more expensive. Less efficient because bureaucrats will start telling bankers how to bank; and more expensive because government regulation always drives up the cost of everything.
Indeed Treasury Minister David Gauke told Sky News: "I'm afraid on just a practical level, Labour's plans don't really help very much. Just forcing some banks to refuse to serve some of their customers and close some of their branches doesn't constitute an economic policy." He then pointed out that around £1bn had been wiped off bank shares on Friday morning since reports of the Labour leader’s speech emerged.
Miliband is making the ‘too big to fail’ argument also heard in America, that the banking industry should be broken up because the burden on the taxpayer is too great if all the money is concentrated in too few places.
That seems to make sense but in the American 2008 banking meltdown it was smaller banks that experienced insolvency first. The warning signs were there of what was coming but the political will to intervene was almost non-existent.
The banking industry will essentially do the same things across the board whether there are two big banks or twenty. Since banks compete with each other they constantly adjust to the risk one another take in order to be competitive – in the end their risk factors are more or less the same, resulting in similar policies.
Predictably Prime Minister Cameron blamed the previous Labour administration as he responded to Miliband saying: "We've been clearing up the mess made by Ed Miliband and Ed Balls and sorting out our banking system, and it's much stronger than the mess we inherited from Labour."
Even the left-wing Business Secretary Vince Cable said "We have created two new challenger banks within the last year - one out of RBS, one out of Lloyds. There are other new challenger banks already starting... and I'm in the process of getting the Government's business bank operating, which is supporting new kinds of lending, through the internet for example. There's no point in doing what Ed Miliband's doing, which is going back to the beginning."
He also stated that while he agreed with Miliband's desire for increased competition his plans were simply "reinventing the wheel". If the Leader of the Opposition can’t get Cable, a Liberal-Democrat who belongs in the Labour Party, to at least give some tacit nod of approval then the plan apparently isn’t very good.
Clearly this is a politician trying to find ways to grab the spotlight and champion something. Although Labour are doing OK in the polls as the opposition typically does, Miliband remains personally unpopular and he seems to be trying to find something to champion.
The Tories just took an arrow out of the lefty quill by proposing to raise the minimum wage to £7 per hour, the kind of ‘we put the poor first’ proposal that is usually a staple for the Labour Party. Miliband is trying to find something to run on but all the good issues belong to the UK Independence Party on the other side of the spectrum.
