Why Miliband's banking cap doesn't fit

You wait years before you get an intelligent intervention about the middle classes, and then suddenly three of them come along at once.

Ed Miliband has now finally made his speech, which you can read in full here.  Nick Clegg launched a report for the think-tank 4Children describing how this generation is the first for half a century or so to expect their children to be worse off than they are.

There is an element of bathos about putting it like this, but I can't help mentioning that there was a third intervention.  Yes, you  guessed it, the updated, 'affordable' edition of Broke: How to Survive the Middle Class Crisis is now published and on the shelves.

This made it a strange week for me.  For the past year, I have been working almost entirely on the two issues of the middle classes and how to get a more responsive banking system.  Suddenly, and thanks to Miliband, both issues hit the headlines at exactly the same time.

I have now finally read Miliband's speech.  Let's get this clear: I applaud him for tackling the issue and for his courage in recognising that the trends corroding the middle classes began before the current coalition took power.  But really - he is going to have to do better than this if he is really going to shift the debate.

Let's just look at his proposal on banks.

I am absolutely in favour of market caps, not just in banking but in retailing and energy and many other sectors as well.  The Office of Fair Trading says that market distortions creep in over a market share of 8 per cent, and - although you might not go that far - I see no reason why any company should build up more than 15 per cent in any market.

That would be a Liberal approach.  It would mean more competition, better customer service, lower prices.
But in banking, that is not a solution to the basic problem - which is that the big banks are no longer geared up to lend money to local business.  They have no infrastructure to price risk for local business.  Without local banks, we have no direct link between local deposits and local enterprise - as they have in most of our trading partners.

The coalition has carved two more big banks out of Lloyds and RBS.  Miliband wants to carve two more.  That will mean more competition at national level - but will do very little to provide what we really need: local banks, committed to local business, and with the infrastructure and local intelligence to support them.

Miliband seems to have proposed a symbolic solution designed to show he is going to be tough on the big banks, but has not succeeded in convincing me that he is serious about a new tier of banking - and I don't see why the UK should be almost the only major trading nation without one.

Three quarters of small businesses in Germany bank with their local sparkassen.  UK small businesses have no equivalent.

I don't give up hope.  Miliband's office is looking at local banking now.  His advisors have talked about community banks.  But what we badly need is proposals.

This gives time for the Lib Dems to make the local banking and local business issue their own.  There is more competition, thanks to the coalition.  The big banks are somewhat more secure too, though the risk of another banking crash via wild derivatives seems little further away.

But on the crucial issue of linking local deposits with local enterprise - that is where we need commitment, and I believe that the Lib Dems will expand on their 2010 manifesto commitment and adopt this approach.  And if you have been wondering - this is what they need to do.