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[January 18, 2014]
Politics: Miliband vows bank reform not retribution: Speech calls for big five banks to be broken up Critics say cap on market share could hit customers
(Guardian (UK) Via Acquire Media NewsEdge) Ed Miliband was yesterday accused by the business secretary Vince Cable of reinventing the wheel when he unveiled his plans to break up the big five high street banks and introduce two new challenger banks taking up as much 16% of the market.
Cable said the government had already taken action to increase competition among high street lenders, with new challenger banks such as TSB and Williams & Glyn's entering the system, supported by the government's business bank.
Echoing criticisms of the governor of the Bank of England Mark Carney, Cable said that imposing "arbitrary ceilings" on the market share of banks was not a "sensible way" of increasing competition.
"Clearly there is over-concentration of business lending, this was pointed out in the Cruickshank report at the turn of the century and, you know, 13 years on we've still got a very, very concentrated system of business lending.
"We do need competition in the banking sector but Miliband is in danger of re-inventing the wheel. The proposals he put forward this morning don't really add to anything we have already got." In a much trailed speech in London Miliband said banking reform was only half-complete and more radical action was needed to end the long term concentration of British banking, and help create a new economy.
"We need a reckoning with our banks, not for retribution but for reform," he said. "In this country, over decades we have seen greater and greater concentration in our banking system. I am determined that the next Labour government turns that tide.
"I want to send a message to all the small and medium sized businesses of our country: under the next Labour government, instead of you serving the banks, the banks will serve you once again." He was unrepentant about his plans to inject more competition. "After decades of banking becoming more and more concentrated, I am determined that Labour will turn that tide. I want to send a message to our small and medium sized businesses: Under the next Labour government, instead of you serving the banks, the banks will serve you." Ed Balls, the shadow chancellor, stressed that Labour's planned cap on the market share of the big five banks would involve a "hard cap" blocking banks growing by merger and acquisition, and a softer cap on banks taking a more flexible approach. He dismissed suggestions that the break-up might force banks to turn their backs on poorer customers.
"We have four banks who control 75% of personal current accounts for ordinary people and four banks controlling 85% of small business lending. Both the parliamentary commission and the Vickers commission have highlighted the lack of competition in our banking system and there have been attempts to have more competition in the last few years and they've failed. What the next Labour government is saying is 'We're going to act.'" He added: "I understand the business argument that says any proposal for change is destabilising and causes uncertainty, but we need changes in this market we need radical change. We have had change but it has not gone far enough." David Gauke, the Treasury minister, said Labour had still left a vacuum at the heart of its economic policy. He added: "I notice that a lot has been wiped off the value of the shares of those banks this morning so I don't know how helpful that is in terms of that national interest because that's UK taxpayers who have lost out. We'll see over the longer term but I think it is something like pounds 1bn this morning." The fall in shares was relatively small, taking shares in state owned Lloyds and RBS largely back where they had been at the beginning of the week.
The British Bankers Association said an arbitrary cap could endanger customer choice and see some poorer customers lose out. It insisted lending to small business had been growing since the recovery took hold.
Some banking sources blamed the high capital ratios imposed on banks as holding back new entrants, an issue that Labour had not addressed. Others said Labour's emphasis on bank branches missed the important growth of internet banking.
Balls revealed he had spoken to Carney on Thursday to brief him on Labour's plans, and tried to smooth over differences with the Bank of England governor by saying Labour's plans on a cap on market share were flexible and will be hammered out with the Competition and Markets Authority. But Balls implicitly criticised the governor for rejecting the plans before he had seen Miliband's speech.
Chuka Umunna, the shadow business secretary, more explicitly warned Carney: "It is not healthy for us to involve governors of the Bank of England in big political debates." Captions: Ed Miliband greets supporters in London after announcing plans for two banks to challenge the dominant big five Photograph: Peter Macdiarmid/Getty Images (c) 2014 Guardian Newspapers Limited.
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