Miliband takes on the banks

Labour leader Ed Miliband’s call for a “reckoning” with the banking sector is the latest phase of his “overtly anti-capitalist agenda”, says Jeremy Warner in The Daily Telegraph. By shifting his party so “decisively to the left” he has forced the Tories to abandon some of their free-market principles in their efforts to “outsmart him”.

Ideologically, Miliband’s promised onslaught against the “malefactors of great wealth” is based on the precedent of Theodore Roosevelt, who took on the “robber barons” in the early 20th century.

Miliband’s ideas may be “economically questionable”, but they have popular appeal. Modern capitalism seems to have no answers to growing inequality or high youth unemployment.

Just as Roosevelt – a Republican – was no anti-capitalist, so Miliband’s aim is to fix capitalism and make it popular again, says Andrew Rawnsley in The Observer. His reforms focus on two ideas: to cap the market share any bank can control, and to break up the two partly state-owned banks to create at least two “challenger” institutions. This should “not be seen as anti-business but the reverse”.

Miliband sees his key leadership theme as challenging “predators”: Rupert Murdoch, the big energy firms, payday lenders. Allies believe his new capitalism “ought to be a winner”. Sceptics fear “it is too abstract an idea to sell” and will be trumped by the simpler Tory message that Labour will wreck the recovery.

Are the proposals any good? “Few would argue” with the point that our banking sector is “highly concentrated”, says the Financial Times. The “big five” – Lloyds Banking Group, Barclays, HSBC, RBS and Santander – control four-fifths of the market for personal accounts and 90% for business lending. The answer is not to carve out “smaller carbon copies of existing banks”, but to lower barriers to entry.

The biggest of these are the way banking services are priced (our addiction to free banking militates against price competition) and the ability of consumers to switch. Quite, agrees Kamal Ahmed in The Daily Telegraph. Miliband’s proposals could actually make things worse.

A cap could “throttle” competition: banks will fight “tooth and nail” to achieve a market share just below it, then cease all competitive behaviour to avoid exceeding it. If forced to sell branches, they will shut the least profitable first, in the poorest areas, that Labour wants to help.

The best reform is to introduce “number portability”: allow people to switch banks as easily as phone providers, says Paul Marshall in The Times. This “goes with the grain of much more significant changes” about to hit banks, which are set to fall victim to the internet.

Peer-to-peer lending, for instance, enables borrowing at lower rates than those charged by traditional banks. “Miliband is right that the industry must change. But his solutions are way behind the times.”