This article was originally published by the Guardian.
If Brexit means leaving the single market and the customs union, as the prime minister told us last week, it is no great surprise to hear that major banks are planning to shift operations out of the UK. It could be the beginning of the end for an economic order that has favoured London’s status as a global hub for financial services, while whole regions of the country have been left stranded. Today society is more polarised than at any time since the beginning of the 20th century. Central London is the richest single area in Europe, while standards of living in West Wales and the Valleys are comparable to those in recent EU accession countries such as Poland and Hungary.
If the UK’s finance-led model is at risk of breaking down, we must begin the long task of building a new economic model that works better. The prime minister has talked about this, but it seems that her plan could be a race to the bottom on tax and regulation. That’s no help for communities that feel powerless or regions left behind by decades of industrial decline. Low tax and low levels of regulation are part of the problem, not part of the solution.
People need more control over the decisions and resources that shape their lives, and a financial system that works for the long-term interests of society. The UK has one of the largest and most concentrated banking sectors among the advanced economies. Unlike other countries, it has no significant local or regional banking presence. Adrift of specific geographical areas or social objectives, the UK’s banks have increasingly focused on lending to financial services and property sectors, where London dominates, rather than investing in production sectors which are more widely distributed across UK regions. Today less than 10% of total lending goes to business for productive investment.
Establishing local sources of finance should be a top priority for rebalancing the economy – whether or not the big banks relocate. Of the roughly 400,000 people who work in the UK’s banking sector, most work in domestic retail banking. Wholesale banking accounts for about 120,000 jobs, and up to 20% of these could be at risk following Brexit. However, a finance system focused on socially useful lending could create far more jobs indirectly than our current system creates directly as a sector in its own right.
This could begin by taking control of the taxpayer-owned RBS and transforming it into a network of local banks, each with a public interest mandate to promote the local economy. By helping to create and retain wealth locally, a new model of banking would invest in disenfranchised communities and breathe new life into them. A more extensive branch network, with decisions made at the local level, would create thousands of new, high-skilled jobs across the country.
This must be supported by an ambitious plan for promoting economic renewal. Many of the places that voted overwhelmingly for Brexit were those left behind by a decline in British industry since the late 1970s – and those suffering the most from government spending cuts. But these areas have also benefited the most from EU regional development funding – and therefore stand to lose the most from leaving.
A new industrial strategy and plan for regeneration is essential to boost the incomes and opportunities of these alienated communities. This should be targeted towards new technologies, renewable energy and supporting local supply chains. The aim must be to invest in building the capabilities of people and communities, recognising that wealth is collectively produced by all of us and that the economy is only succeeding if it’s truly benefiting all of us.
If we are serious about a new industrial strategy, it can’t just be about picking a few sectors to “replace” finance and throwing some money at them. It must be about understanding the needs and assets of every community, and doing the difficult, boring work of building the infrastructure – financial, physical and social – that can help those communities achieve their potential.
Councils and other public bodies should be encouraged to procure from businesses that provide good-quality local jobs and so keep wealth circulating in the area. Models of enterprise that really put employees in control, such as cooperatives and mutuals, should be incentivised. Private companies should be encouraged to reinvest their profits rather than squandering them on share buybacks and inflated dividend payouts.
Given that the top five areas that voted for leave were all coastal communities, it’s time for a “blue new deal”. That means generating prosperous local economies by harnessing the potential of the sea to revitalise our coast by boosting industries such as small-scale fishing, tourism, aquaculture and renewables. Research from the New Economics Foundation shows that greater investment in building expertise and capacity in our coastal communities has the potential to create 160,000 new jobs and add £7.2bn to the coastal economy.
It’s a small step, but this approach could be scaled up and adapted to other communities, right across the country. Local banks, local investment, local businesses providing what people want and need, creating local jobs and, crucially, local control. Combined with an ambitious programme of public investment in health, education, housing and infrastructure to alleviate the clear concerns raised by voters in the referendum campaign, we can begin the long task of transforming our London-centric economic model.
Brexit entails a once-in-a-generation reshaping of our laws, relationships and economy. The future of the country hangs in the balance, and it is up to us to build it.