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Nick Clegg and Vince Cable set out radical banking reforms

April 20, 2010 7:40 AM
Originally published by UK Liberal Democrats

The plans include:

Breaking up the banks and a Banking Levy

Getting the banks lending

Local Enterprise Funds

Regional Stock Exchanges

Supporting mutuals Commenting, Liberal Democrat Leader Nick Clegg said:

"At the heart of our plans for economic change is a simple insight: we need to devolve and disperse economic power, particularly in the banking sector.

"Most people, except perhaps Gordon Brown, now recognise that too much centralisation in politics has led to wasteful bureaucratic public services and a command-and-control state that leeches power away from people.

"I believe the same analysis can be made of our economy.

"Power has been too concentrated in a few super-banks.

"The building societies and regional banks that used to be the bedrock of families' and small businesses' access to credit have been swallowed up.

"And accessing equity investment, so you don't have to rely on loans to grow your business, can be almost impossible unless you're already big enough to cope with the burdens of listing on a stock exchange in London.

"Trying to grow businesses without money is like trying to grow plants without soil.

"We will create a totally different financial system; a completely different ecology of banking. More mutuals; a Post Office Bank; credit unions; Regional Stock Exchanges; Local Enterprise Funds to attract venture capital into small businesses.

"And for the banks: fundamental change. We will break them up and break them down.

"To re-root our banks in the communities they serve by making them, quite simply, smaller.

"And to protect people's everyday savings from being used to fuel the casino culture of the global financial industry by separating retail and investment banking for good.

"Under the Liberal Democrats, the financial infrastructure of Britain will be different.

"Diverse, devolved and open, where more money is available, on reasonable terms to families and local businesses, not from distant super-banks but locally."

We will split up the banks, to separate low risk deposit taking banking and utility banking from high risk investment banking. We appreciate that separating these banking functions is complex, and will take time. We will consult about the best way to split up these banks. However until such a time, the taxpayer will have to continue underwriting the banks. To recognise this we are proposing a new levy on bank profits at a rate of 10%.

This levy would be supplementary to corporation tax. However, unlike corporation tax, it would be payable on all profits made within the tax year, without the deduction of previous years' losses. Unlike windfall taxes, a banking levy of the kind we are proposing is not arbitrary as it is a direct recognition that banks have received beneficial and explicit taxpayer support without having to pay for it.

A Liberal Democrat Government will immediately set new net lending targets for both Lloyds and RBS for 2010-11, to ensure that amount of money available to British businesses increases in the next 12 months. We will make it clear that these targets are non-negotiable. If at the end of the year the Chancellor of the Exchequer judges that these lending targets have not been met, the Board of Directors of these two banking groups will be held personally responsible and will be dismissed.

This policy is part of the Liberal Democrats' view that the priority of the nationalised banks must not be to repair their balance sheets in preparation for a swift reprivatisation but they should be solely focussed on supporting the recovery through lending to good British businesses.

We will connect local entrepreneurs with local wealth through the creation of Local Enterprise Funds (LEFs). LEFs are tax efficient investment vehicles which will invest in start-up/early stage businesses looking for equity investments of £75,000 to £150,000. This will provide entrepreneurs with the access to the capital they need to develop and ultimately commercialise their ideas.

Entrepreneurs who successfully attract seed capital often require further development capital to continue climbing the Ladder of Enterprise. Many such rapidly expanding SMEs will be unable to support additional bank debt and are still too small to attract private equity interest or access existing stock markets. We will introduce a network of Regional Stock Exchanges (RSEs) to act as regional platforms, matching local investors with growing SMEs to provide cost-effective access to equity. RSEs will make a significant long-term contribution to economic growth throughout the UK.

We believe there is a particularly important role for mutuals, social enterprises and co-operatives to play in the creation of a more balanced and mixed economy. We will:

Give financial regulators a clear objective of maintaining a diversity of providers in the financial services industry.

Seek to turn Northern Rock into a mutual, and investigate whether mutualisation could be applied to parts of other financial institutions owned by the government.

Divide ownership of the Royal Mail between an employee trust and the government, with the remaining 49% being sold to create funds for investment. To give both Royal Mail and post offices a long term future, we would separate Post Office limited and retain it in full public ownership.

Pass a new Mutuals Bill to bring the law up to date and give responsibility for mutuals to a specific minister.