The Charlotte Gore Blog

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The Big Society Bank Experiment

February 14th, 2011 at 11:28 am

Don't worry. No-one gets the Big Society.

I freely admit I still have no idea what the Big Society is. I know that, from the Government’s point of view, it’s about trying to get people to volunteer to fix things they feel passionately about rather than relying on the Government to do everything for them. Such a cultural shift would go a long way towards the ever increasing size of the British State, and the near limitless reach that it has.

Speaking of ‘near limitless reach’ they’re setting up a new Bank. Hurrah! Not an evil bank like the Big Four, though. No, this is going to be the Big Society Bank – The Little Bank with a Big Heart. It’s a new Quango, obviously, and won’t lend to businesses directly – it will, instead, lend to… er… investors.. and funds… and things. Those investors will then lend to ‘social enterprises’ and ‘New Green Industry Of The Future’ which, in turn, will create the Big Society.

So that’s the plan. The money it lends out, quite obviously, is your money. At least to start with. The contents of your dormant bank accounts are being confiscated cos, well, they can. That’ll raise them £100 to £400 million, which I’m sure they’ll be very pleased with. Then, after that money’s been used, they’ll begin buying money from the other main commercial banks at commercial rates.

Essentially, then, the Big Society Bank is a middleman between high risk investors – and the actual banks who, currently, because they have this legal obligation to make money for their shareholders, cannot even think about lending to The Green Industries Of The Future or Social Enterprises.

Such a state of affairs is considered a “Market Failure”, or “a politically inconvenient outcome”. The Big Society Bank, then, will step in place between the Investors and the Banks. When it makes a loss, as it inevitably will, it will be the taxpayer that makes up the difference. That £100m float money – which, again, is your money – won’t last very long.

Yet the Government is insistent that the Big Society Bank won’t make a loss, that it will pay for itself and from it will bloom the businesses of the Future.

If this is true, the obvious question is this: Why is Government having to set up a Bank like this? Wouldn’t it be more ‘Big Society’ if people did this themselves?

There’s two possible reasons. The first is that the barrier to entry into UK banking is as steep as they come. Not even Richard Branson can get a banking licence. Alan Sugar? No chance. Virtually every banking brand you see belongs to one of the Big Four banks, using their operating licence.

In addition to the sheer nightmare and cost of getting a banking licence, the current climate surrounding banks means that our new people powered Big Hearted Bank would be subject to the same levies, the same tax regime, the same regulatory structure. The need to make enormous quantities of money just to stay afloat would override all other concerns.

The second reason is this: Banks are only lending – when they lend at all – to very low risk enterprises at the moment. Green Tech and Social Enterprise are very, very, very high risk. No bank could survive with a portfolio comprised entirely of long shots and losers and charity cases, but the new bank won’t even be doing that – they’ll be putting your money into the hands of other people that are utterly detached from the source of the money or the people who underwrite it – that’s you, by the way. They’ll hope that the Investors are wise and clever and able to pick out the winners and losers with an unerring degree of accuracy.

As far as a business strategy goes, it’s not a very strong one. In fact, I suspect the only people who’d lend me money to start such a bank (if I were foolish enough to attempt it) would be… I guess… The Big Society Bank itself.

This fact is, I think, important. I think it’s the crux of the matter.

Of course, the bank – and most importantly the Government – won’t be to blame when the Big Four demand their money back when The Big Society Bank goes bust. The companies who ultimately spend the money won’t get the blame, either – after all, they’ll have tried their best. No, it’ll be the “evil” speculators and investors who will get the blame. It’s all very neat. Win win for everyone, obviously. Politicians AND banks! Everyone!

Now, will someone please explain what the difference between the Big State and the Big Society is because, from here, I can’t see it. This looks like protectionism and planning: reinvented and rebranded, but ultimately the same toxic mess it always proves to be.

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