The banking system needs to do a better job of supporting businesses and serving customers according to the manifestos of the three main parties published this week. Labour promise to “develop a banking system that works for businesses in every region and every sector in Britain”. The Conservatives “will continue to build a stronger, safer and more secure banking system that… provides businesses with the finance they need to grow and create jobs” and the Liberal Democrats pledge to “grow a competitive banking sector, support alternative finance providers and improve access to finance for business and consumers”.
It is undoubtedly true that the banking system has done a poor job of providing credit to businesses outside of the financial sector. In the seven years before the financial crisis, lending to non-financial business accounted for just 8% of the total lending by UK banks. Net lending to SMEs, which refers to gross lending less repayments, was negative in the Bank of England’s most recent figures.
The parties’ commitments to address this problem are welcome, but their manifestos are free of any detail about what structural financial reform might be necessary to ensure that the banking system enables businesses to grow and create jobs.
Positive Money is advocating an in-depth parliamentary commission to investigate the role of money and credit within the economy. We want to shed light on why our current system of credit creation does such a bad job of supporting the real economy, and to consider the result of so much credit circulating within the financial system and property market without any connection to production.
The idea of a Money and Credit Commission was proposed in a paper of the think-tank Institute of public policy and research last year, and endorsed by MPs from across the political spectrum in a backbench debate last year.
Soon after the election, we’ll be delivering a petition to the new Prime Minister telling them that money creation should only be used in the public interest. We see the establishment of a parliamentary commission as the natural first step towards reforming the monetary system to achieve this aim. Sign here to add your name and share.