Two years ago, Cameron and Clegg promised change. They promised an economy that would grow and that we were all in these difficult economic times together. But the reality is very different. They also promised real change, but the reality is somewhat different. Their refusal to properly deal with the banks is a case in point.
Hard-pressed families and businesses are still paying the price of the global financial crash. But the very same banks that caused the crash were allowed to get away with mis-selling products to small businesses, they are still failing to lend sufficiently to support the real economy, and yet they continue to shell out big bonuses.
We have reached a point where banks seem more focused on their global investments than their local customers. Banks used to seem far more rooted in our local communities (signs like the 'Yorkshire Bank' or the 'Midland Bank' could be seen on the High Street).
A culture was also allowed to build up that was too often driven by short-term gain and a quick return being the first priority. Ed Miliband has called this a “shift from stewardship banking to casino banking”.
So how can we start to re-build a better banking system? How can we shape the banking system so that bankers are not given an incentive to focus on the short-term? And how can we move to a system which people can have confidence in once again?
First, there isn’t proper competition in our banking system. There are only five major banks in this country and consumers do not have enough choice. We need more banks and this means ending the dominance of the big five. Retail and investment banking should be separated so that no bank is too big to fail and banks should be forced to sell off hundreds of more branches. The Government must also take further action to make it easier for customers to switch bank accounts. As Ed Balls has said, you’re more likely to be divorced than to change your bank account, and that’s partly because it’s difficult. To change this, the Government could consider proposals to have fully transferable account numbers, like with mobile phones.
Second, we need greater transparency. The banks are currently not serving many of the most deprived areas in the UK. In the US, banks are made to publish details of the areas of the country where they are not lending - we should do the same.
Third, credit is not flowing to the right places and small businesses are still being locked out of loans from the banks. It is up to the Government to tackle this problem of financing. The establishment of a British Investment Bank would help to guarantee lending to the entrepreneurs and SMEs that really need it.
Fourth, a ‘code of conduct’ for bankers should be introduced. Teachers, doctors and lawyers all have to abide by clear rules in their professions. We need the same for bankers. This would outline what is expected and anyone who breaks the rules would be struck off.
Fifth, we should set up a ‘Financial Crime Unit’ within the Serious Fraud Office to investigate serious financial services fraud like the LIBOR scandal. Britain should not be a soft touch for the prosecution of financial crime. Where serious offences have been committed, bankers should face the prospect of jail time.
But finally we need a deep culture change, particularly when it comes to pay and bonuses. This means giving shareholders binding votes on pay policy and making sure that executive pay is more transparent. The Government should implement a £2 billion tax on bank bonuses to fund a real jobs guarantee and help 100,000 young people find work.
Labour also recently argued for a forensic, judge-led, public inquiry into the banking sector to help address the deep cultural challenges the industry faces. Lord Justice Leveson is cleaning house in Britain's media after the phone-hacking scandal - we need something similar, though time-limited, to sort out the banks.
I am not anti-banking. I recognise that the financial sector is extremely important to the UK. It contributes billions to the economy and over 1 million people work across the country in financial services, nearly 4 per cent of total UK employment. Over 70,000 are employed in Yorkshire alone.
Banking reform is not about damaging the sector, but about making sure that the system works for everyone and that it works in the best interests of the British economy in the long-term.
Consecutive governments, including the last Labour government, made mistakes over regulation. Labour did toughen up financial regulation in government - in the face of fierce opposition from the Tories who were calling for less regulation - but this did not go far enough. An overhaul of the industry is clearly long overdue. As Ed Miliband has said, if we want to have a system that serves "every region, every sector, every business, and every family in this country", it is time to properly reform the banking sector once and for all.