Could new community banks change Britain for the better?

A protest against the ECB in 2015. Image: Getty.

In the wake of the 2008 crisis, it rapidly became clear that banking was broken. The global financial sector had captured its own regulators and mis-sold mortgages while spreading the risk across the entire system to such an extent that the global economy crashed nearly overnight.

Andy Haldane, chief economist of the bank of England responded by suggesting that part of the problem was lack of diversity of ownership model. This dovetailed neatly with the work the Royal Society of Arts (RSA) was doing, envisaging the new economy that was clearly necessary to replace the broken old one: modelling, researching and promoting initiatives and policies such as economic democracy, basic income, financial reform etc. Now, over 10 years later several economists affiliated with the RSA are launching or promoting public and community banks.

Community and social banks of this sort are commonplace in several other countries: there are the Sparkassen in Germany, the ICBA group in the US and Triodos in the Netherlands. The Sparkassen banks have very good customer relations relative to the rest of the German financial sector, while an ICBA member bank, the Bank of North Dakota, helped the state weather the effects of the financial crash in a way that just did not happen in other states. Meanwhile the Netherlands’ Triodos only finances projects that aim to make a positive cultural, social or environmental change – particularly financing a transition to renewable energy.  

Tony Greenham, former director of economics at the RSA, is one of the economists promoting community banks as a solution for the UK, and is currently launching South West Mutual, a community bank for the South West region. Greenham describes it as a regional stakeholder bank that is “focussed on a particular geographic subregion of a country, with a dual social and financial mission”. It differs from a normal shareholder bank insofar as it’s accountable to all stakeholders, not just shareholders. In practice this means that anyone with a stake in the bank, which could simply be a current account, gets to vote on how it is run.

Greenham explains that “these banks are quite often successful by collaborating together in networks to share costs and resources”. That is exactly what is happening in the UK. The Community Savings Bank Association is a network of eighteen banks, of which South West mutual is one, which are aiming to establish themselves across the UK, from Scotland to Kent.

Such banks could help the UK address the structures behind a variety of social and economic problems. The city of London and the hegemony of the banks and financial institutions based there, bear significant responsibility for the political and economic malaise we find ourselves in today. Capital flows from the various regions of the UK into London, and the presence of the financial sector there narrows the focus of politicians to a small area in and around London, meaning it receives a disproportionate amount of public spending at the expense of poorer areas.

New community banks might not be able to break the stranglehold of the city over our politics and economics, but they can mount a challenge and show there is another way. They outperform the big banks on a number of metrics such as financial inclusion, lending to small and medium businesses and smoothing out regional inequalities.


That last metric is crucial to the UK which has some of the worst regional inequalities in western Europe. Greenham and others in the new economics scene argue that part of the reason that these inequalities are so bad is because we lack these regional stakeholder-owned banks that can capture and recirculate money within a region and prevent it from flooding back into the capital.

Greenham is not the only one who thinks this. He has been in touch over a period of months with Matthew Brown, leader of Preston Council and pioneer of the much lauded “Preston model”, who is helping to launch the North West regional community bank which is part of the CSBA network. Their regional and community focus, and the ability to retain capital inside an area, means these banks will be a boon to further devolution and projects, like the Preston model, based on radical municipalism.

Some critics – such as RSA fellow, economist and social bank advocate Paul Gower who will be speaking at the Institute for Social Banking’s summer school in Switzerland – have suggested that the smaller scale of these banks can lead to corruption, as has sometimes happened in Germany, if they are not carefully managed. Greenham’s argument is that “all corporate failures are ultimately failures of governance”: he disagrees that the smaller scale makes these banks inherently more vulnerable to corruption. Indeed, he notes, nobody points to the corruption at Metrobank as indicative of inherent flaws at that larger scale of finance.

Supporters of community banks also argue that they could have an impact beyond their size by dragging the larger banks in a more socially oriented direction. Greenham likens it to the role the BBC as a public service broadcaster has played in raising the quality of other channels’ programming, by forcing them to compete with programme designed a social good.

Meanwhile, Gower notes that the big banks are stealing the language of social banks and may find themselves in a situation where their employees have bought into the social purpose: shareholders and directors would have no choice but to comply or risk damaging employee engagement and therefore productivity.

The CSBA network probably isn’t the revolution people in Occupy camps were hoping for 10 years ago. But whether it’s helping finance the retrofitting of houses with passive insulation as part of the zero carbon transition, regenerating regions or rebuilding the high street, these smaller, democratically controlled and socially oriented banks can help address the abject failures of big financial institutions and could form a small part of much wider transformations in the country.                    

 

 
 
 
 

The Tory manifesto promises to both increase AND decrease the rate of housebuilding

Housing secretary Robert Jenrick. Image: Getty.

In his 2014 Mansion House speech, the then-chancellor George Osborne expressed with uncharacteristic honesty the motives at the heart of how the Conservatives see British housing politics: “The British people want our homes to go up in value, but also remain affordable; and we want more homes built, just not next to us.”

Five years later these contradictions remain unreconciled and present in their manifesto, which contains two different and contradictory – but clearly extensively targeted and focus-grouped – sets of policies.

The Conservatives have two housing targets. The first is to make significant progress to hitting “our target of 300,000 houses built a year by the mid-2020s”. The second is their aim to build “at least a million new homes” during the next parliament, which implies a target of 200,000 homes a year. This is not only 100,000 lower than their initial target but also lower than the current rate of housebuilding: 213,660 new homes a year. They have therefore implied at separate points in the same manifesto that they intend to simultaneously increase and decrease the rate of housebuilding.  

There are similar conflicts in their approach to planning. They intend to make the “planning system simpler” while simultaneously aiming to introduce community-led design standards for development and planning obligations to provide infrastructure for the local community.

None of this is unsurprising, The Tories don’t seem to know if they want to build more houses or not – so of course they don’t know whether they wish to make it easier or harder to do so.  

Politicians like obfuscation on housing policy to placate NIMBY voters. Take for example prospective Conservative MP and ‘environmentalist’ Zac Goldsmith’s crusade to save treasured local car parks. The manifesto can equally be accused of pandering to NIMBY instincts, protecting their shire voters from all housing, including ones they might actually need or want, by promising to protect the greenbelt.  

Instead, Conservatives intend to foist development on Labour-leaning inner-city communities and prioritising brownfield development and “urban regeneration”. This requires massive, infeasible increases in proposed density on brownfield sites – and research by Shelter has shown there are simply not enough brownfield sites in cities like London. Consequently, it is not clear how such a policy can co-exist with giving these inner-city communities rights on local design. Perhaps they intend to square that circle through wholesale adoption of YIMBY proposals to let residents on each street opt to pick a design code and the right to turn their two-storey semi-detached suburban houses into a more walkable, prettier street of five-storey terraces or mansion blocks. If so, they have not spelt that out. 

Many complain of NIMBYism at a local level and its toxic effects on housing affordability. But NIMBYism at the national level – central government desire to restrict housebuilding to make house prices rise – is the unspoken elephant in the room. After all, 63 per cent of UK voters are homeowners and price rises caused by a housing shortage are hardly unpopular with them. 


There is anecdotal evidence that protecting or inflating the value of homeowners’ assets is central to Conservative strategy. When George Osborne was criticised for the inflation his help to buy policy caused within the housing market, he allegedly told the Cabinet: “Hopefully we will get a little housing boom, and everyone will be happy as property values go up”. More recently Luke Barratt of Inside Housing noted that most Conservatives he spoke to at the 2018 party conference were scared “they’d be punished by their traditional voters if the values of their homes were to fall”. He was told by a Conservative activist at the conference that, “If you build too many houses, you get a Labour government”.

But the senior figures in the Conservative Party are painfully aware that the continuing housing shortage presents major long-term problems for the Party. As the manifesto itself acknowledges: “For the UK to unleash its potential, young people need the security of knowing that homeownership is within their reach.” Perpetual increases in house prices are incompatible with this goal. The problem has greatly contributed to the Conservatives’ severe unpopularity with a younger generation priced out of decent accommodation. 

Equally, there is increasing evidence that ‘gains’ from rising house prices are disproportionately concentrated in the south of England.  The differences in housing costs between regions greatly reduce labour mobility, suppressing wage growth in the north and midlands, which in turn leads to greater regional inequality. The policy of coddling southern homeowners at the expense of the economic well-being of other regions is a major long-term stumbling block to Conservative desires to make inroads into the ‘red wall’ of Leave-voting labour seats outside the south.

Before dealing with the issue of where housing should go, you must decide whether you want to build enough housing to reduce the housing crisis. On this issue, the Conservative response is, “Perhaps”. In contrast, even though they may not know where to put the necessary housing, the Labour Party at least has a desire in the abstract to deal with the crisis, even if the will to fix it, in reality, remains to be seen. 

Ultimately the Conservative Party seems to want to pay lip service to the housing crisis without stopping the ever-upward march of prices, underpinned by a needless shortage. Osborne’s dilemma – that the will of much of his party’s voter base clashes with the need to provide adequate housing – remains at the heart of Conservative housing policy. The Conservatives continue to hesitate, which is of little comfort to those who suffer because of a needless and immoral housing shortage.

Sam Watling is the director of Brighton Yimby, a group which aims to solve Brighton’s housing crisis while maintaining the character of the Sussex countryside.