A Feast Of Anger And Blame

You have to wonder whether the UK's banking crisis will ever end. After months of wrangling, the regulators have finally decided which UK banks are still short of about £26bn in capital (for now). But yesterday's Parliamentary Banking Standards Commission report points to an endless list of more serious problems that won't be solved by simply leeching yet more billions out of the economy.

The members of the BSC must be highly commended for taking on the long overdue job of trying to bring Britain's banks to heel. Volume 2 of the epic report is an invaluable account of their painful journey, made poignant by the fact that, until quite recently, the members of the Commission actually believed in our rotten financial system. The scale of their disillusionment is almost beyond comprehension. What perhaps started as an investigation into fairly specific allegations of corporate malfeasance resulted in one proud British institution turning on another out of a sense of betrayal. 

So, apart from its entertaining descent into the gory details of British banking, the BSC report represents yet another hammer blow to our faith in society's institutions - this time delivered by one of the ringleaders, namely Parliament itself.

Yet the question remains as to just how far along the 'change curve' we have really travelled. Despite the BSC's list of recommendations, we seem to be merely inching our way through anger and blame, rather than understanding and accepting that the world has truly changed and we need to move on.

While the Commission has voiced great support for alternative finance models and eliminating perverse tax incentives, and the Treasury and FCA have made some proposals to improve the regulatory landscape, the rhetoric from the government continues to put banks at the heart of Britain's economic future, rather than a more open, diverse and innovative financial system.

How much more economic mayhem it will take for society to genuinely 'move on' is anyone's guess.

PAC Fiddles While Public Money Burns

This week saw the publication of two reports that highlight the woeful set of priorities that govern the activities of the Public Accounts Committee and the media bandwagon that follows it. 

The first was the repeat of PAC's outrage over Google's international tax affairs. It seems we really are expected to believe that (1) these MPs are unaware of the rules governing where a company is 'permanently established' under OECD/UN Conventions and other tax treaties; (2) that the amount of additional tax that Google might have otherwise paid on about £3bn a year of revenue during 2006-2011 would have saved the UK economy; and (3) the UK does not benefit from the application of these rules to its own firms in other jurisdictions.

The second report came in the form of the lastest Bumper Book of Government Waste (itself hardly 'new'), which highlights yet again the £120bn that the public sector burnt last year for absolutely no benefit whatsoever.

With priorities like these, we should add PAC's own budget to the bonfire.

A Directory of Crowdfunding Directories?

Crowdfunding directories are becoming useful, given the wide variety of potential models, specific geographic and other constraints, and the rapidly increasing numbers of new platforms opening up new niches. 

Each directory seems to take a slightly different tack or favour certain types of platform, so it will be interesting to see which 'prevail' and why, and whether they represent a source of customers. 

For instance, Nesta recently launched Crowdingin.com, which aims to list information on platforms open to fundraising from individuals and businesses in the UK. 

Directories with a broader focus include AllStreet, Crowdfund Insider, and Crowdsourcing. The Canadian NCFA has its own nationally-oriented directory.  

Of course, trade body membership lists are also important, particularly where regulation is still evolving and the trade body has a published set of rules that members have committed to follow, e.g. the P2PFA, UKCFA.

By all means suggest any others you have found useful (and why)... At this rate, we'll need a directory of directories!

Image from gCodeLabs.

Political Lipstick On a Pig

Source: Guardian/Observer

The spin doctors are feverishly applying lipstick to RBS, so it can be 're-privatised' in time for the next election. No matter that the bank is still short of capital after five long years of public ownership, that the Exchequer is sitting on a £19bn loss and that the bank continues to lend less and less to the productive economy while soaking up the subsidies.

Renowned for 'group-think', the IMF also seems to have seized on the election as an opportunity to get the politicians to 'clarify the plan' for continued state ownership. Duly emboldened, the Chancellor has dismissed calls by other departments and members of the Banking Standards Commission for the bank to be broken up as not being achievable within the electoral time frame.

Of course the election won't wave a magic wand over RBS's inability to operate without massive public subsidy, or its failure to align with the interests of its customers. It will always have cheap ISA money to fall back on, and it's obvious by now that no one will force it to lend more to small businesses. It even recently announced heavy overdraft charges, on top of its many previous expressions of contempt for those it is supposed to serve.

Instead, the government sees the 're-privatisation' as a sweet opportunity to enhance its electoral standing, sexing-up its plans to 'give away' some RBS shares as a sign of its commitment to 'protecting' or 'maximising value' for taxpayers. It's as if laying the blame for the astronomical cost of the bailout at Labour's door somehow resets the counter to zero...

Promising RBS shares to every taxpayer is of course a standard political ploy, designed to prey on middle class greed (the rich couldn't care less, and the paper will be slim comfort to those on lower incomes). On this occasion, however, the proximity of the election might also lead some to describe it, rather aptly, as 'porkbarrelling'.

But the very reason the government wants to foist RBS shares on you is the very reason you shouldn't want them. Free of its chains, this porcine monster will be eager to get its snout back amongst the big, speculative assets as quickly as possible, and your shareholding will be taken as a personal vote in its favour. Some might even naively cheer the beast on, dreaming that their stake in the mystical 'upside' from its activities will somehow compensate them for getting fleeced on the bailout in the first place, and all the disasters that have followed.

Meanwhile the rest of us will wait forlornly - along with the inert, beleaguered customers - until the government finally pours another bucket of publicly funded swill into the banking trough.

Only Civil Servants Can Save The British Economy

That's the conclusion I reach from reading Lord Young's report on Growing Micro Businesses. The report makes it clear that government plans to fund small business growth and harness public spending power are still medium term options. Absent substantial growth, all we can do in the short term is make sure our tax revenues aren't wasted on a day-to-day basis. Can our public sector colleagues plug the leaks?

The scenario

Public spending is still roaring away at 44% of UK GDP and tax revenue barely exceeds 35%. This represents a yawning chasm that remains to be filled with higher taxes and/or spending cuts - unless GDP grows substantially faster. This would make public spending less of a drag on the economy (35% is the ideal number) and produce more tax revenue to pay off public debt and narrow the deficit. Unfortunately, the productive economy is limping along, largely due to problems in the UK (and EU) banking systems. This is particularly bad for the UK, as businesses rely on only a few major banks for over 90% of funding.

The growth strategy

Unable to improve the flow of funds to the productive economy via the banks, Lord Young's report reveals that the government's growth strategy depends heavily on educating over 4 million small businesses about alternative ways to finance increased production and employment, and using public sector procurement to buy more from those smaller businesses. Theory has it that, as they grow, the rest of the private sector will also benefit, and away we go...

Awareness of alternative finance

Unfortunately, Lord Young notes that the government is yet to come up with "a robust, evidence-based strategy for communications to all micro, small and medium sized businesses" to explain the alternative funding options available. Some money is being offered via alternative finance platforms, which leverages their private marketing spend, but apparently the government still needs to issue more information on support schemes via Gov.uk (the 3rd attempt at a government portal).

However, educating SMEs about non-bank funding options is only one side of the equation. Success also depends on persuading mainstream savers and investors to put money into alternative channels. This collides with the £400bn ISA programme, which massively subsidises bank deposits and regulated investment funds that don't support the productive economy. Countless people have explained this particularly vicious circle to the government. But the Treasury seems determined not to level the playing field, either by extending the ISA scheme to include alternative financial services or by reducing the size of the incentive that favours only bank deposits and regulated funds.

This is a problem that seems unlikely to be resolved any time soon.

Smarter public procurement

So where are we on the road towards smarter public sector procurement?

Unfortunately, the smarter procurement drive is mired in the need to "simplify and standardise procurement practice across all parts of Local Government, health trusts and the wider public sector".

This seems an enormous challenge. The next step, for example, is to initiate consultations on reforms to public sector procurement standards...

So actually getting the public sector to buy more from SMEs from the top down is likely to be a very long way off.

The last card - plugging the leaks

That leaves only one option in the short term: civil servants spending less and more wisely.

That doesn't mean slashing welfare payments, and so on. It means wasting less money in the context of the £166bn the public sector spends on its own goods and services.

Surely not all of this needs formal consultation. I mean, isn't it partly a mindset? Thriving private sector businesses recognise the need for constant change to remain aligned with their customers' evolving behaviour and changes in the market, and public sector organisations face the same challenge. Yet we hear little about how the public sector evolves to be more customer-aligned and efficient. Do public sector workers realise the scale of the opportunity to help? Surely they aren't resistant to the idea - after all, they must be among the most publicly spirited people in the country...

It's unfortunate that the public focus is preoccupied with the other side of the government balance sheet. It seems such a waste of time and resources to get distracted by the moral panic about how much more tax foreign corporations should pay, when we could be getting so much better value for the crushing amount of tax that each of us already pays personally.

The process of hauling people before the Public Accounts Committee alone costs money. And we have to be mindful that reforming international tax treaties will rest on the shoulders of public sector staff who may well spend, very inefficiently, huge amounts on travel and other services in the negotiation process. 

Ironically, even the argument about extra tax revenue demonstrates why it's critical to fix all the holes in the bucket before pouring more money into it.