Why Matthew Oakeshott was right

I don’t know how it came about that Matthew Oakeshott is no longer speaking for the party on economics in the House of Lords. I don’t know whether it was his decision or George Osborne’s. But the fact is that he is overwhelmingly right.

Project Merlin is no solution to the banking problem. In fact, by failing to recognise the real problem here, it may make matters worse.

The real problem is this. It isn’t that banks are somehow unwilling to lend money to small businesses; it is that they are no longer set up to do so. They have no local managers empowered to take decisions. They have risk software that rules out most deals. They have such onerous conditions and charges that many SMEs shun them altogether.

Pretending that our current banking system is capable of doing the job delays a solution that may provide us with a proper lending infrastructure. Worse, it may fuel the next property bubble.

Why? Because 70 per cent of UK bank lending in this area is going into property deals. Force them to lend more to small businesses and all it will do is to funnel more money into property, with another dismal round of the whole economic bubble again.

Banking is fast emerging as the great moral issue of the time – and I speak as someone whose bank charges have gone into Bob Diamond’s obscene bonus. Every generation is slow to wake up to the moral horror in their midst; we are slowly waking up to ours.  A dysfunctional banking system is undermining our ability to build effective, interdependent local economies, while fuelling inflation and corrosive inequality in their pay packets.