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Bookmark and ShareFaiza Shaheen is a researcher on economic inequality at nef.

Out of balance. (Image by CarbonNYC via Flickr)

The 2010 Budget is a reminder of just how every government decision has repercussions for economic inequality. Apart from the obvious inequality related tax changes, proposals such as the Green Investment Bank, the extension of the jobs programme for young people, the increase in the stamp duty, fuel payments, bank accounts for everyone, the freeze on inheritance tax and lack of deep-seated financial reform could all contribute to either hindering or aiding the struggle for economic equality.

Take the Green Investment Bank, a proposal signalling a step in the right direction (although still small in scale compared to the Green New Deal which is needed) – if the money is used to create high quality green jobs in places that have struggled to recover from de-industrialisation then it could begin to counteract both wage and spatial inequalities.

On the other hand, the likely benefits derived from tackling financial exclusion by ensuring everyone has a bank account are dwarfed by the costs of continuing without radical financial reform. Without reform, the risk-taking behaviour and bonus culture will continue to make the rich richer whilst putting the economy and jobs at risk.

Even changes in income tax are likely to have a negligible impact on economic inequality. The introduction of a 50 percent tax rate for those earning over £150,000 is welcomed, but inequality cannot be remedied simply by small changes in tax, and it is certainly not just about taxes on income. Firstly, whilst much needed, a progressive tax system is a curative rather than preventative measure, meaning that growing wage differentials are left untouched. Secondly, wealth is fundamental in enforcing economic hierarchies. A report for the National Equality Panel found that the richest 10 per cent are now hundred times wealthier than the poorest 10 per cent. The freeze on inheritance tax is obviously not going to help reverse this situation.

Finally, one also needs to be watchful of how government departments make their efficiency savings. The types of jobs that are cut, such as administrative positions, and the ways in which back office functions are re-organised could result in both less entry-level service jobs and poorer quality frontline services – both of which have a greater impact on lower income groups.

Overall, the combination of proposals could have a negative net impact on inequality. This is why it is so important for the yearly Treasury budgets to cost proposals according to repercussions on inequality, as suggested by the One Society Campaign. And let’s not forget that nef’s calculations in The Great Transition put the cumulative cost of addressing social problems associated with economic inequality at £4.5 trillion by 2050.

Some may argue that the Labour Party are constrained on what they can do on inheritance tax and tax reform simply because they do not want to scare off voters. But we need to ask why the rich, who are a tiny minority (only 10 per cent of the population earn over £40k and 1.5% over £100k), are so influential. The answer to this question gets at the root of why inequality still takes a backseat when constructing policy.

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Bookmark and Sharelindsay-mackie2Lindsay Mackie is a consultant at nef. She is leading nef’s post office campaign and works on Clone Town and Ghost Town Britain.

They have not been earth shattering, but two recent developments around the Post Office are a cause for modest cheer.

One is the Post Office consultation set up by the Department for Business Innovation and Skills, Prop: Lord Mandelson.

Now this a foolish exercise in long grass exploration in one way- any decent Government would be taking firm steps itself to safeguard the Post Office network, give more Government business to Post Offices , make imaginative use of this national network– and indeed go the whole hog and set up a Post Bank. But this one isn’t and when a gift horse comes along its best to do more than a dental examination. BIS is consulting us on suggested financial services that the Post Office should provide and we should all be sending in our ideas and responses to postofficebanking@bis.gsi.gov.uk or to Post Office Banking Consultation, Shareholder Executive, BISA, 1,Victoria St. London.

BIS wants to know what we like about the PO existing financial services , what we think might also be offered which exists elsewhere in the world, what new financial services we’d like at our local Post Office, and how best could the Post Office support poor people and people who are financially excluded.

Loud and clear we must tell BIS that we want current accounts, much more help for small local businesses, budgeting assistance schemes, attention to the queuing problem and an underlying shift of Government opinion about the Post Office-from thinking that it is a drain on the public purse, to realising that it is a trusted national asset capable of expanding to fit the 21 st century. The consultation must end by the end of February.

And lets raise a cheer for Consumer Focus which this week in a crisp little report, which actually talked to hundreds of people, recommended an immediate current account which the financially excluded would actually use, thus lifting up to a million people from their currently state (brought about mainly because banks aren’t interested in engaging with people on low incomes and the feeling is therefore reciprocated).

The Government would do well to read Consumer Focus’s report – and then implement it.

Bookmark and Sharelindsay-mackie2Lindsay Mackie is a consultant at nef. She is leading nef’s post office campaign and works on Clone Town and Ghost Town Britain.

The Post Office consultation announced today is a most baffling affair. It’s billed by Lord Mandelson and his department as containing “exciting proposals” on which he wants our views. He wants to see the Post Office at the forefront of mortgage provision and he says it is “ideally placed to bring banking services to the heart of people’s communities”.

The consultation will ask us if we want the Post Office to have its own current account, a children’s savings account, business accounts, the ability to manage our money on a weekly budgeting account, and links between the Post Office and credit unions.

The department for business, innovation and skills (BIS) also wants the banks that don’t allow their current accounts to be accessed at the Post Office – hang your heads RBS and HSBC – to do so. (They could just tell them to do it – why consult us?)

The thing is though, these proposals are good. The Post Office should adopt all of them, and has indeed in the past announced that it will, for instance, offer current accounts. The big criticism is they don’t go nearly far enough. A Post Bank – where all the profits go back into the Post Office and are not halved with the Bank of Ireland as at present – would be a really practical and visionary step. It would introduce diversity into the banking system too.

So why have a consultation? These are mainly business proposals that would extend the Post Office’s thriving and well-run financial services. It’s hard to see the populace rising up in indignation at the idea of Post Office children’s savings accounts. (“How outrageous. I am so against this!”). It’s not like that. Why are we having a three-month consultation on financial developments?

If BIS was serious about quickly expanding and strengthening the Post Office it would say to Alan Cook, its head, that he should just get on with providing these sensible and desirable new services. Whether people want them or not will show up in the market. At nef and in the Post Bank Coalition we think that people love and trust the Post Office and will use these new offers and thus make these extended financial services popular.

The consultation is really worrying on two counts. The main one is that these mouse-like developments – in fact any self-respecting mouse would have a bolder vision than this – don’t tackle the neglect and the lack of government support from which the Post Office has suffered for decades. A third of sub-postmasters and sub-postmistresses have seen their revenues decline in the last year. This is just not sustainable. The government has recognised today that the Post Office is a great British institution but it needs to treat it like one.

That means that it doesn’t need this consultation (reporting cunningly just before the election, when the long grass will be even longer) but it does need to follow the excellent advice of the BIS select committee report last July – on, yes, the future of the Post Office. Having massively consulted, it concluded that financial services should be expanded and that, crucially, the government must put its business through post offices and recognise the Post Office’s potential as an unparalleled social, community and economic network.

Mandelson’s department needs to be more radical, more profoundly committed to strengthening the Post Office, more committed to helping small businesses have the financial advice and help they need, than is allowed for by these virtuous proposals. Consulting us on a Post Bank, on using Northern Rock, on making the Post Office the public alternative to our present dreadful banking system – now that would be worth consulting on.

Bookmark and Sharelindsay-mackie2Lindsay Mackie is a consultant at nef. She is leading nef’s post office campaign and works on Clone Town and Ghost Town Britain.

The Prime Minister’s commitment to bringing Post Office banking into the heart of communities, and to giving the Post Office a much greater role in the economy, is a brilliant and simple declaration that this government will protect the public realm, that community matters, that localism matters and that it wants to offer diversity within our astonishingly monolithic retail banking system.

It was also the commitment that got one of the biggest cheers of the Prime Minister’s speech.

If we can now, fast, build up the people’s bank at the Post Office, now that it has effectively been given the wholehearted stamp of approval by the government, it will safeguard the Post Office network – no more dreadful and unnecessary closures – and will offer a real banking alternative to people who think banks should be about more than slicing consumers and then gambling with their money.

So Gordon Brown has done the right thing with his one-line announcement. It’s great.  nef has been campaigning all year, with the Post Bank Coalition, for a Post Bank).

The idea is that the Post Office can also have a Post Bank, such as those that have been set up so successfully in other countries (France, Italy, New Zealand). It is a simple and practical way into a future where community, key information points and financial diversity will be needed more than ever.

A Post Bank will revive and protect the Post Office network, support local economies and small and medium-sized businesses, combat social exclusion and financial inequalities and introduce banking diversity.

Really there is hardly anyone who doesn’t warm to the idea of a great increase in Post Office banking services. (Apart from the British Banking Association, which thinks banks are doing a fine job without the need for another model. Where to start on this peculiar view?) The key now is to make it work.

Sources close to the prime minister are apparently saying we could see increased and improved Post Office services by the end of the year – we need to keep Whitehall to that.

But we also need, in comradely fashion, to ensure that what we get is a true, independent, proper Post Bank and that it keeps its radical roots. The UK has an amazing history of non-shareholder driven banking models – mutuals, trustee savings banks, co-operatives – and Post Banks must be set up using these.

There are all sorts of nifty technical innovations a Post Bank could use to bring in younger clients such as versions of mobile phone banking. And the Post Bank provides the reach to give practical financial advice and help to the poor and the debt-laden. There are very interesting systems available now that can offer planned financial systems to individuals at either no or low cost. Antony Elliott’s Fair Banking scheme is one.

And we don’t need to start from scratch in making the Post Bank a full banking alternative. As an initial step, building a Post Bank around an existing 100% publicly owned bank, Northern Rock, is a logical and brave step. Don’t sell it off to Tesco or whoever – will they provide a true People’s Bank? – keep it working for the public who own it .

In the worst of the crisis last year people flocked to put their money into the Post Office. It’s trusted, even loved. Today’s news is just what we need to keep it like that.

Bookmark and ShareAndy Wimbush is nef‘s Communications Assistant and blogmaster. He also draws cartoons for nef‘s newspaper.

Pat McFadden: a neoliberal nostalgic

Pat McFadden, a neoliberal nostalgic | Photograph: Sharon Wallace

It’s been over a week now since we launched our proposal for a People’s Bank based at the Post Office. In a packed committee room in the Houses of Parliament we heard politicians of all stripes voice their support for this new kind of bank, one that would put communities, small businessses and the financial excluded first.

The only speaker to mince his words and to temper his enthusiasm with caveats was, of course, the Minister for Postal Affairs, Pat McFadden. There is a danger, McFadden warned us, of becoming so ‘nostalgic’ about the Post Office that it blinds us to its current problems and the need to modernise. And then he said: ‘We can’t simply go back to the way things were’.

We can’t simply go back to the way things were.

But isn’t it McFadden and the rest of this Government – rather than the Post Bank Coalition – who are the real nostalgics here? After all, they’re the ones who are desperate for us to go back to the way things were before Lehman Brothers declared its insolvency, before the failure of HBOS and RBS. They continue to pump seemingly endless amounts of public money into banks which, as nef argued in our banking report I.O.U.K., are no longer able to perform the most basic functions of a bank.

The Post Office, by contrast, remains a vital and much-needed element of the UK economy. nef‘s research shows that each post office saves neighbouring small businesses around £270,000 each year. And small businesses employ the majority of the private sector workforce, around about 58%. Nor is the Post Bank simply a means of saving the Post Office network: we also believe it would offer something markedly different to what the current high street banks are doing, even taking into account the fact that these banks are now effectively in public ownership. As Liberal Democrat Treasury Spokesperson Vince Cable said of the Post Bank proposal:

This is an attempt to clean up banking. The co-option of the system has spread right through into the branches. There was aggressive cross-selling, commission-based branch managers were drawing people into transactions they should never have done. This is a cleaner principle based on sound banking ideas, but driven by public interest rather than narrow short-term profits.

What’s more, the proposal could easily be put into action. A recent poll by PoliticsHome.com revealed that 74% of the electorate think that a Post Bank would be a good idea, even at this early stage. And brand experts have agreed that the Post Office is uniquely situated – both geographically and within the public consciousness  – to be able to provide trusted, reliable financial services amid so much economic turmoil.

The only thing stopping McFadden, Brown, Mandelson and their ilk is their neoliberal nostalgia. They are desperate to get back to business-as-usual without apology because it is too uncomfortable to admit that the Thatcherite economics with which they dramatically transformed their party has failed. While they wish that we could all just go back to the way things were, others are forging ahead with a new economy.

To mark the publication of I.O.U.K.: banking failure and how to build a fit financial sectornef‘s new report on banking – the nef triple crunch blog is staging a debate. Sargon Nissan, one of the authors of the report, kicks things off. Replies from our special guest bloggers will be posted below.

Banking unfit for purpose

Bookmark and ShareSargon Nissan is a researcher in nef‘s Access to Finance team.


When Lord Mandelson said, last November, ‘It’s completely unacceptable to the Government and to business in this country for banks indefinitely to stop functioning as banks.’, he inadvertently revealed policy makers’ confusion over what to do amidst this unprecedented crisis of banks and the financial system.

They’ve recogI.O.U.K.: The failure of banks and how to build a fit financial sectornised banks have stopped functioning (who hasn’t?) but not that they’ve become unfit for purpose.

Our banks have become far removed from their roots as lenders and investors in communities and businesses, as we reveal in our new report, I.O.U.K.: banking failure and how to build a fit financial sector. Decades of banking sector consolidation have been encouraged by lax regulation. There are now fewer bank branches than post offices in this country – and the number is set to drop still further. Meanwhile, Community Development Finance Institutions (CDFIs) have been starved of support while attempting to address this failure directly.

Increasingly desperate Government bailouts – witness Monday’s £260 billion underwriting of Lloyds and Barclays now reportedly ‘mulling’ the Treasury’s offer to underwrite its toxic assets –  are having little effect bar robbing the taxpayer.

The Government is throwing good money after bad. Read the rest of this entry »

Bookmark and ShareVeronika Thiel is a researcher and project manager on nef’s Access to Finance team.

bank-of-england1As a social scientist, I am predisposed to like surveys. But sometimes, you do wonder about their merit. Sometimes, they just state the obvious. The Financial Times and the BBC, among other media outlets, reported on a new survey by the Bank of England that showed that high-income households are struggling with their debt, especially unsecured lending, such as overdrafts and credit cards.

*Yawn* Oh, really? I do apologise if the sarcasm won’t travel in this blog as much as I’d like it to, but common decency prevents me from using more obvious similes here.

Of course, richer people will also struggle with debt. Given the level of consumer debt in this country, that’s hardly a surprise. We are at the beginning of a recession, inflation is up, and the heyday of easy credit that allowed people to fund a big-spender lifestyle is over. It was only a matter of time.

The only news is that this now affects the upper income classes as well. The first signs of the crisis, however, appeared much earlier. Personal insolvencies have shot up dramatically since 2003, as the graph based on Government data below shows.

Insolvencies in England and Wales, 1997-2007

Insolvencies in England and Wales, 1997-2007

The fact that individual insolvencies were up despite the easy availability of credit, and that they are a measure of last resort, should have rung alarm bells back then. But it didn’t, at least not in the right places.

So many households have struggled with debt for a long time, especially those without access to cheap credit from banks. For them, the credit crunch has been happening for a long time. They had no choice but to pay for essential goods such as a new fridge or a boiler by using a doorstep lenders, who charge often around 250% APR. Other households will have to go down this route now as well.

So while I have sympathy with those wealthy people who are now finding themselves in unexpected hardship, let’s not forget that for many much poorer people this has long been a reality.

In an ideal world, the newspaper headlines wouldn’t simply tell us what we already know. They’d give us some real news, such as: we need to stop funding our lives with credit, and we need to start a discussion on living wages and benefits. Now if I found a survey that suggested this as an outcome, I’d be all ears again.

Bookmark and ShareVeronika Thiel is a researcher and project manager on nef’s Access to Finance team.

tamed.Can the leopard change its spots after all? It appears so! It was a ‘leaked’ letter by Lord Mandelson to the Guardian that indicated a change in Government thinking. Instead of finding new ways to justify post office closures, the Government abandoned a tender for the running of the POCA and left it where it was – with the Post Office.

nef welcomes this move, but we also, as always, go a step further: we want to see the creation of a People’s Bank at the Post Office. Now, it seems, there are some MPs who start to come round to our thinking. As the Financial Times report, the Post Office could indeed soon be offering current accounts.

Since we seem to have the Government’s ear at the moment, can we ask you to consider the following when you recreate the People’s Bank?

  • make sure it is accessible for all, and a champion for innovation as the Girobank once was.
  • make it a bank for people on lower incomes and the financially excluded by being transparent and flexible
  • make sure it invests its deposits where they are collected – in the local communities
  • and use the opportunity to make the high-street banks follow suite.

Britain already has one of the highest banking concentrations, with only four high street banks covering most of the market. This reduces customer choice and stiffles innovation. By introducing a new bank, people would finally have what has recently become a scarce commodity: choice of where to bank.

I would not be surprised to find that many would choose the People’s Bank.

Bookmark and Sharelindsay-mackie2Lindsay Mackie is a consultant at nef. She is leading nef’s post office campaign and works on Clone Town and Ghost Town Britain.

lettersIn a week when the Government has finally joined the millions of us who see Royal Mail and Post Office Ltd as an essential public service which needs to be strengthened and extended in the services it offers, you have to hand it to PostComm. They’ve come out fighting today for the past. Discredited ideas? Step right in. Postcomm will give you a warm hearing.

Today sees the release of the eighth annual report from PostComm – the regulator for the Post Office. You might think that PostComm’s job was to keep the Post Office efficient, on time, that sort of thing. But since its inception in 2000, Postcomm has set up as deregulator in chief. It has trumpeted the virtues of competition, of breaking up Royal Mail, of letting in private competitors who can deliver mail and parcels for the final mile, leaving it to Royal Mail to carry out all the other work to ensure delivery for that final mile.

Not surprisingly, this genius scheme has led to domestic customers and small businesses paying more for a worse service while corporate clients take advantage of the ‘final mile’ deal more cheaply.

Their latest stupid contribution to the debate on the future of our Post Office is to suggest that Royal Mail and Post Office Ltd be de-merged. It joins their other ideas like forcing Royal Mail to pay VAT, and predicting that many private companies would want to build their own ‘end to end’ mail systems, rather than cannibalizing Royal Mail’s work. Unsurprisingly no company wanted to spend their own money when they could make use of Royal Mail’s.

This de-merger really would be the death knell of a decent Post Office network. Royal Mail needs the post office to provide a universal service while the Post Office remains dependent on Royal Mail for approximately a third of its revenue. Separation would threaten not strengthen this revenue stream.

But then what can we expect from a regulator which has been consistently wrong about the supposed benefits of Post Office liberalisation (really, really wrong) and whose description of the national rage and anguish at the Post Office closure programme is this: “The high profile reaction to post office closures throughout the UK serves as testament to the public’s attachment to their local post office.”

Postcomm should be re-designed (with two exceptions, its Commissioners are from the worlds of huge corporations, investment banking and European de-regulation) and told to stick to the honest work of ensuring that we have a Post Office that millions of us want, and help this institution flourish to that end.

Bookmark and Sharelindsay-mackie2Lindsay Mackie is a consultant at nef. She is leading nef’s post office campaign and works on Clone Town and Ghost Town Britain.

The award of the Post Office Card Account to the Post Office is more brilliant news from the Government (a rarely crafted phrase). Today’s news that the Department for Work and Pensions is, after all, to award the Post Office Card Account to the Post Office, after an ill advised tender process, will safeguard much needed business for the network and provide a better service to ithe card’s 4.3 million users.

So now we have the Government, in the form of Lord Mandelson and James Purnell, publicly recognizing the future potential of the Post Office to provide financial services at a time when the big banks’ credibility and popularity is shot to bits.

Post OfficeIt looks as though the Government has seen that being the Dr Beeching of the 21st century by allowing a key part of national infrastructure to be smashed on the altar of privatization and de-regulation isn’t a smart move. If this is so, then crucially the business secretary must now halt the current round of 2,500 post office closures if the Post Office under Royal Mail is to have a chance of being fit for the tough economic future that’s looming.

There are 14,500 post offices in the UK. A key and under reported role they have is in supporting the small and medium sized businesses that will be Britain’s economic saviour . This is a network that can be used to link the productive economy to stable finance. Therefore the next thing the Government has to do is investigate how to set up a People’s Bank based on the trusted PO network. This banking service would be fair and it would provide both local expertise and national linking.

In addition, the Post Office can be a hub for local and national government information. It could become a digitally backed network in addition to the vital real contact with real people. It holds local communities together. It includes the financially excluded. It exists in those place from which banks have pulled out.

Next on the to do list: Lord Mandelson must stop the creeping de-regulation of key parts of Royal Mail and announce that this great British institution is not up for grabs from private companies. Then he should say he recognizes Royal Mail as a British institution that is commercially viable but also a public service (and for this reason he could carry on the PO subsidy) which is not up for sale to private bidders- and he should advise any such potential bidders to take themselves elsewhere.

The campaign to save, strengthen and expand Royal Mail and the Post Office in these clear directions will be even more intensive now. All ideas and collaboration welcome…

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nef employees blog in their personal capacity. The opinions expressed here do not necessarily reflect those of the new economics foundation.