Royal Bank of Scandal Reaches New Low

The Tomlinson Report into the practices at the Royal Bank of Scotland, compiled under instruction from Vince Cable's Business Department, has been passed to the Financial Conduct Authority we read this morning. It will apparently demonstrate that the bank that we saved and which we own, had gone beyond being parasitical on the businesses of this country to actively working to destroy them and profit from their demise. It has long been clear that the financial sector in this country is sucking the lifeblood out of our economy, but the fraudulent nature of RBS's business activity takes us to a new level of revulsion.

Since the crisis of 2008 banks have found it more difficult to generate huge profits that were possible at that time. They have looked for ever more ingenious ways to exploit their customers which has given rise to a continuing tale of scandalous mis-selling, first selling insurance against potential redundancy to employees who did not need it, then selling financial products known as swaps to small businesses who had no need for them or understanding of them.

But the latest scandal to be revealed in the Tomlinson report is another step down the ladder into the slough of public opprobrium. It relates to one part of the bank known as the Global Restructuring Group (GRG). RBS's customers who got into difficulties paying back their loans were sent to this part of the bank apparently to receive help with turning their businesses around. Instead they were deliberately charged high fees so that they would become bankrupt, enabling the bank which had inside information to be the first on the scene to pick up their assets cheap. This is a shocking allegation that will now be investigated by the Financial Conduct Authority that has received a detailed report on the activity from the Business Innovation and Skills Department.

It has been clear for years that the banking sector in the UK is pernicious and not serving the real economy, but to find that it is actively working to destroy the small businesses that we need for our economy to thrive is another shock. It undermines yet again the suggestion that what we need is a change of culture in banking. What we actually need is significant structural reform and a much stronger role to be played by politicians in controlling what is possible in this most important sector in a capitalist economy.

Here is a simple idea which I have suggested before but which seems particularly relevant today: the Royal Bank of Scotland should be broken up and turned into a system of local community banks on the model of the German banking system which has done so much to support their Mittelstand - the layer of small and medium-sized enterprises that is the engine of the German economy. Each local bank could include local business people and others with an understanding of local economic needs on its board. It could still lend at interest but do so in a way that served its local economy and built its resilience rather than actively destroying businesses.

That a bank would work to undermine its customers for its own advantage is shocking and probably fraudulent, but that this activity would be undertaken by a bank that owes its existence to public support and is 80% owned by the public is, quite frankly, unbelievable. Of all the politicians who have been in a position to act on the disasters of the British banking system, Vince Cable has been the most disappointing. He clearly has the knowledge about how to do the right thing so we can only assume that he does not have the power within the coalition. Let us hope that this latest and most shocking scandal gives him the authority to take the action our small businesses so desperately need.

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Living off Our Children

On Wednesday next week, 20th November, students across the country will unite under the banner of the Student Assembly Against Austerity to protest the planned privatisation of the Student Loan Company. The outrage of pushing young people into debt before they even understand the implications lay at the heart of the protests against the increase in student fees two years ago. But the sell-off of the Student Loan Company to fill a hole in the public finances pushes students not just into debt but into the clutches of private finance companies.

The students have a Facebook page to publicise events.It shows that across the country from Aberystwyth to Essex students will be demonstrating against their use as a cash cow for cash-strapped government. In Liverpool students will be running a ‘student debt obstacle course’ and collecting signatures on a petition to send to local MPs. In York they will be having a more traditional rally with speakers. We need to lend them our support wherever and whenever we can to resist what is a mechanism to allow us to feed off their future earnings.

The reason that the student loans are attractive to finance companies is that they are prime material for securitisation - the process of financial alchemy that turns an illiquid asset into something that can be bought and sold and used for speculation. It was exactly this process, with sub-prime mortgages, that lay behind the financial bubble and then bust back in 2007/8. The original asset, the loan to a student, generates a slow although dependable income as repayments are made. But once bundled together and turned into a security these debts can be bought and sold in secondary markets where much greater speculative earnings can be made. This explains the appeal of the Student Loan Company to financial sharks.

My report for the Green House identified the problems generated by a university financing model based on debt. It demonstrated that this is a political choice, in my view based as much on the desire to create docile citizens and willing workers as to save pressure on the public finances. I argued that the privatisation of student debt as part of the plan from the start:

'This determination to sell student debt was partially confirmed in the 2010 Budget in which the government said it would in the next 12 months 'announce its decision on selling part of the student loan portfolio, including looking at the options for early repayment for individuals, in light ofLord Browne’s review of higher education finance. (Budget 2010, pg 44)'

The report quotes data from a study by Grant Thornton that demonstrates how the debt system of finance will exacerbate inequality between students and work against social mobility. The research calculates that those who will lose most are those on high but not excessively high incomes. In their comparison of three representative workers, all of whom graduate with a debt of £40,000, the journalist who never achieves a high income has the vast majority of her interest written off because she does not earn enough to repay it. The barrister (a representative high earner) repays his loan together with £28,000 of interest. The loser is the civil servant who, although he makes rapid career progression, does not earn enough to pay off his loan rapidly, and so incurs interest of £58,000 as well as his loan of £40,000. These are staggering sums of money, and indicate that the students of the future will be funding those financial companies to whom the government will sell on student debt handsomely. 

I end the report by suggesting radical egalitarian models for funding higher education arising from an open debate about the ownership and division of the product of academic labour, which in other sectors i sometimes addressed by the creation of a mutual structure. Under the supervision of Professor Rebecca Boden we have a student exploring options for a co-operative university at Roehampton. The discussion will also be taken forward at a meeting called Time for a Co-operative University? at the Institute of Education, Thursday 12 December 2013, 5.30-7.30pm, Room 804
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A New Carbon Budgeting Tool

A guest post from Aubrey Meyer of the Global Commons Institute

In the light of the positive attention to 'Contraction and Convergence' shown by the Gaian Economics blog, please may I introduce you to CBAT, the 'Carbon Budget Analysis Tool'.

CBAT is the latest phase of C&C development: and is intended to be useful now that - following the IPCC's Fifth Progress Report (AR5) - 'carbon-budgeting' seems finally to be on the agenda.

For example, the analysis tool quickly shows the IPCC AR5 Contraction-to-Concentrations results as a result of the UK Climate Act (UKCA). This particular piece of analysis shows the emissions-budget-integral in the UK Climate Act is either: -

[a] twice too much (and that's without the feedbacks) or

[b] just a third too much or

[c] just right

This really gives one something to chew on over regarding IPCC's stated '1,000 Gt C' maximum for two degrees!

Its also interesting to see/play that combined that with contraction-convergence-rates CBAT Domain Two. CBAT Domain Two perhaps explains why the prescribed global convergence date of 2050 in the UKCA was so inflammatory at COP-15. The convergence to equality by 2050 in the UKCA was something of a fig-leaf and using CBAT D2 animation quickly shows that. Its quite an eye-opener i.e. convergence by the time 80% of the budget has been used up makes no real difference at all.

GCI has always modelled that convergence for any rate of global emissions contraction should be at a negotiated in the light of 'historic responsibilities'. Subject to the UNFCCC-compliance rates of Contraction and Concentrations in D1, the animation D2 clearly shows the maths sub-division of this.

The CBAT is open to consultation and amendment so please take some time to look at it and comment on it. So far some others have and said supportive things, which is encouraging which are available on our website.

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Tories Attack Green Levies to Defend their Carbon Interests

For a Green who came into the movement more because of social justice than environmental concerns it is heartening for me to see the opposition to equality and to environmental protection beginning to coalesce into one mass of odious opposition to a just and sustainable future. The specific example of this in recent days has been the active lobbying by Tory squires from the shires against the green levies on energy bills.

Nafeez Ahmed, who writes for the Guardian on matters of energy, has provided some excellent forensic analysis of the real interests that lie behind the faux concern for pensioner fuel poverty of parliamentarians like Jacob Rees-Mogg, MP for North Somerset. As well as being a prominent controversialist, Mogg is frequently to be heard issuing windy rhetoric about the dangers of environmentalism and the problems with renewables. In his world, coal is still king and the market should be allowed to reign supreme.

We might dismiss this as a lot of hot air were it not for the fact that the hot air is issued for a very specific purpose: to keep inflated the carbon bubble that many argue is more of a risk to our futures than the financial bubble that led to the 2007/8 financial crisis. The concern about the ‘carbon bubble’ is that the world has a vast overhang in terms of the value of fossil-fuel-related assets. As policies to tackle climate change are introduced this value will be suddenly undermined, leading to a collapse in energy commodity prices and the finance that is tied to them.

I have always found this a somewhat naïve argument: since it is the world’s richest and most powerful people who own the assets, fossil and financial, they are hardly likely to see the value of those assets eroded without a fight. Much more likely that they will launch a full-scale assault on the political consensus around pro-climate policies, which appears to be exactly what we are seeing in the antics of Mogg and his ilk. Their insidious attempts to undermine the scientifically evidence about the anthropogenic origin of climate change and the urgent need to address the issue flies in the face of the public interest but is very much in their own private interest.

As Ahmed writes:

‘Rees-Mogg is a founding partner at Somerset Capital Management (SCM), a global asset management fund where he currently works as a macro specialist while also being an MP. Among its many investments, SCM specialises in emerging markets, including in the energy industry. Its largest holdings include oil majors such as the China National Offshore Oil Corporation (CNOOC) - which for instance is spearheading multibillion dollar deals to access the North American shale gas market - and Russia's OJSC Rosneft Oil Company. ’

The wealthy who have unfortunately been elected to run our country hold their wealth in exactly the sort of assets whose value would be undermined if we were to introduce the sorts of policies that tackling climate change urgently demands. Even the small steps along the road to subsidising renewables, not to mention full-scale community ownership of generation on the Danish or German model, would seriously threaten their profitability. So while the Tories who attack green levies may speak of the poor pensioner in a cold house their real interests lie much closer to home.
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Street School Economics

A guest post from Dr Gail Bradbrook, an activist based in Stroud who is active in the Transition and Tax Justice movements and sees economic literacy work as a way to pull these concerns together

A few years ago I began my own journey towards economic literacy. I’ve long been concerned about enabling a more equal, sustainable world and yet how that related to changing the economy was a mystery. I had a pile of vague words and notions in my head, sound bites and ideas, half of them myths. They didn’t connect.

With that comes a sense of disempowerment. Perhaps my longings for justice were just silly in the face of basic economic theory. Perhaps the economy emerged from our human nature and wanting it to be different is an exercise in naivety. It’s certainly convenient if lots of us feel like that and if we remain so cloudy in our understanding. Perhaps it’s no accident that many of us do?

Street School Economics was borne of a personal desire to understand more. Dozens of books, hours of videos and courses later, I have pulled together information and sources on: the Street School website.

As well as looking at some of the basics in economics, such as markets, wealth and money, it also covers some key ideas such as debt, the limits to growth and inequality. A whole raft of solutions are offered, from the actions individuals and communities can take, to the policy solutions that are waiting to be actioned. I hope it’s a resource that people will find useful.

So the idea is to take economics on the streets, to listen to people’s thoughts and give information. So far we have begun to create some kind of ‘art presence’ that will catch the eye. We’ve just decorated a marketing stand we had, but you could use other structures. The presence has contained words which might reflect the kinds of ideas, queries and blockages that a person may have in their mind already, for example: ‘Why not let the banks go bankrupt?’ or ‘I’d rather keep my head in the sand’ or ‘We can deal with debt by giving everyone some money’.

We let people browse and if they want a conversation you can ask what they know about economics. Consider what is the one thing you’d like them to take away? For me it is that this economy has been chosen and there are different types available . . .   we might chose an economy that has the goal of maximising happiness and minimising harm. You can have a table with 'mini lessons' on – we laminated the pages from the Prezi on the site. We had leaflets to hand out and also include leaflets from relevant campaigns or local initiatives.

Obviously the idea of this work is to give people enough knowledge to demand something better. There are other ways to promote economic literacy and we are just starting to pull a network together of those interested in spreading this thinking- be in touch if you want more information (gail.bradbrook AT btinternet.com). We could demonstrate outside economics departments, others have run cafe economiques and lecture series. What else should we try, how do we build a movement?

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Does the Hinkley Deal Involve Subsidy?

There has been some confusion since Ed Davey’s announcement of the details of the plan for building a reactor at Hinkley C in Somerset, and some of this confusion may not be accidental.

First, we have the issue of whether the government is in a position to make this decision. In fact, it is not. Any arrangement that involves explicit or implicit subsidies needs to be investigated under the EU’s state aid rules which are ‘forms of assistance from a public body, or publicly-funded body, given to selected undertakings (any entity which puts goods or services on the given market), which has the potential to distort competition and affect trade between member states of the European Union’ (definition from the BIS website).

During parliamentary questions on 15 May to Michael Fallon, Minister of State for Business and Enterprise, Martin Horwood, MP for Cheltenham, asked the minister ‘how he proposes to comply with the standstill obligation in EU state aid law if he enters into an investment contract or sets a strike price before the European Commission has decided whether to approve such measures’. Fallon replied that ‘Any investment contract, if offered, will contain a condition dependent on a state aid decision from the European Commission’ (Hansard, 15 May 2013).

The minister’s clear view is that the setting of a strike price for energy will require a consideration by the EU Commission in terms of its compliance with competition law, law that relates specifically to the granting of state subsidies that may distort competition. Hence we can infer that the minister himself believed that this arrangement amounted to a public subsidy.

This appears to contradict the statement made on Monday by Ed Davey that ‘For the first time, a nuclear power station in this country will be built without money from the British taxpayer’. This is a carefully phrased statement, since the strike price is an implicit guarantee while the insurance against increasing costs are a risk on the public, which is to say nothing of the responsibility for disposing of the waste the plant generates.

While Davey is nervous about breaking his previous pledge that there would be no subsidies for nuclear, South-West Liberal Democrat MEP Graham Watson is not. As reported back in April he told the somewhat 'Business Green' that he supports subsidies for nuclear power in the South-West. Watson'defended the UK government's right to offer hefty state aid support for new nuclear reactors'.

Specifically in relation to Hinkley C, back in May the minister was asked by Paul Flynn at what stage the negotiations with EDF had reached. The minister replied that ‘in the case of Hinkley Point C, the Government have committed to provide summaries of reports from external advisers and analysis on the value for money of any contract agreed’. These reports were not forthcoming on Monday and I would be interested to see them if anybody knows where to track them down.

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Deconstructing Austerity II. Jobs

Aside from fallacious claims about reducing the national debt, the Conservatives' second claim to economic success--the creation of millions of private sector jobs--is also requires exploration. The well-rehearsed argument goes that massive cuts to public spending are not problematic since the private sector will take up the slack and create jobs to replace those lost in the public sector. There are several sleights of hand say that require unpicking in this part of the austerity narrative.

First it is important to note that the statistics tell us something about the quantity of jobs but nothing about the quality of those jobs, an argument made cogently by the TUC. A job as a nurse or an administrator in a public-sector setting is likely to be a unionised job with a nationally negotiated rate of pay and decent terms and conditions. The sort of job being generated in the private sector is much more likely to be an unskilled, poor-quality job with low pay. These jobs will do nothing to help with the standard-of-living crisis and will also not contribute to rebuilding a flourishing economy even in conventional terms.

The political narrative behind these arguments about the substitution of private for public jobs is the inability of the public sector to create wealth: an important part of the Conservative attack on the public sector (and devastatingly critiqued in an earlier blog!). So it is important to realise that many of the 'new' private sector jobs are actually simply redefined public-sector jobs. My job is a good example. Two years ago I worked in the public sector but now I work in the private sector. Because universities were privatised and are no longer funded from taxation, my job is now one that creates value whereas previously I was a parasite on the taxpayer. The same also applies to those who work in privatised sections of the health service or in services that are increasingly being outsourced from public sector employers such as schools and hospitals. (The Guardian has carried out some preliminary work unpicking this tissue of statistical manipulation.)

Finally, we need to ask what is a job? The data are most often used by Tories in claiming credit for this economic miracle are aggregated data based on everything that counts as a job. Incredibly even people working on zero-hours contracts are included in these figures as are those who are on any type of work scheme. So you don't actually have to be working to be counted in the government's jobs figures. Any government spokesman who presents data on increases in jobs without relating these two full-time equivalent jobs is, if not a liar, at least being very economical with the truth.

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