Sunday, 1 July 2012

A Banking Tale

Four weeks yesterday I'll be in Italy. It'll be just my luck if that's the day it finally stops raining in Scotland but, even then, I will not be tempted to turn back at the airport.

I need my holiday every year. And it is, if I say it myself, a deserved reward after 49 weeks of pretty hard graft.

But the real graft isn't the work. I enjoy the work, grim though its subject matter sometimes is. The real graft is running a small business, which, 31st May past, I've been doing for twenty-one years.

I don't myself hold to the Tory view that small business is over-regulated by Government. We've had little or no grief from the State, local or national, over that period. Sure, the Legal Aid Board could be a bit more competent in their decision making but the tax authorities we deal with: (VAT and PAYE for ourselves; Stamp Duty Land Tax for the clients) have always, in my experience, been unobtrusive in their day to day activities and positively helpful when called upon for advice or assistance. And the Cooncil largely leave us alone, which is the best any small business can hope for.

Over the years I've also managed to hire, and occasionally fire, numerous employees without encountering either the worries about recruitment or the difficulties in departure which we are assured by the wider fringes of the Conservative Party are holding back enterprise.

So, if anybody was to suggest to me that "the state" was a problem for business I could only honestly say that this is not my experience.

But business is business and the legal business is no different. For all they provide 90% of the grief, the Legal Aid Board provide a (declining) 30% of our turnover. And the rest of the turnover is subject to the same ups and downs that affect any other business.

Sometimes you have to speculate to accumulate. Court fees incurred; expert opinions obtained and paid for; simple work in progress carried on behalf of clients who might have a guaranteed settlement but who are unable to pay you as they go along. And if you have over speculated, you need a supportive bank.

Now, at this point you might be expecting a horror story about my own banking experience but, to be honest, I've never had a single problem with my bank, RBS. Any time I've made a case for borrowing, they've stepped up to the plate. Indeed the only time I've been reprimanded by my bank manager was when he complained, on receiving the direct debit, that I had purchased a new car without taking the loan from him!

But while I was at the Law Society I was aware, ex officio, that the banks generally had decided that small legal businesses were a risk. To be honest, like a lot of what went on then, I ingested this information intellectually and then passed it on to others without really thinking that it would affect me.

So, when the new bank manager rolled in nine months later we drank coffee, we exchanged a few words about our different "business", we discussed the state of the nation, we confessed our respective football allegiance and we then shook hands and went on our respective ways.

Thus, when the same man phoned a week or so later to assure me "in case I was worried"  that my overdraft had been renewed, the only moment I actually was "worried" was when I first realised this might have been a matter at issue in the first place!

Now, over the 21 years, I have not spent all of the profits on Italian holidays, tempting though that might have been, so the withdrawal of my overdraft would not have led to my ruin. But it would have involved me in encashing some long term investments and incurring penalties in the process. And, interestingly, the principal  beneficary of these penalties would have been my personal bank........... RBS.

I give that personal experience only to demonstrate one thing. That it is important that banks behave ethically.But also that we have assumed in the past that they do. If the bank had pulled my overdraft, it would not have occurred to me for a minute that this was a decision, even if I disagreed with it, that had been made on anything other than its own merits.

That is what is so shocking about recent events. That there was no pretence, even, that decisions were being taken with regard to the circumstance of the customer. They were being taken solely in the interests of the bank.

And the really shocking case is that of Farepak, where HBOS, knowing that the venture was bust, instructed the Company to continue to collect money being paid to it by those who on any view were the deserving poor in the knowledge that the payers would get no return and the only beneficiary of their payments would be HBOS themselves.

Now, I have already said that Farepak was the absolute low point of New Labour. For the sake of a few million pounds,  "moral hazard" was applied to some of the poorest of our citizens by the very same people who later threw billions at those much better placed to afford such loss, and better informed in the first place, on the basis that they were "too big to fail".

There is a solution to this. It's even already in our hands. If health and education are essential to national wellbeing, then so is credit. So let's not give the (already) nationalised banks back to the private sector. Let's keep them in public ownership. And let's start managing them in the public interest as well,  rather than that of their residual private shareholders.

Now that would be the start of a really radical Labour Manifesto for the next election.

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