The Big Society Post Office bank

I don’t know what it says about the state of things that, as the election draws closer, thebathhouse has become quieter. I feel overwhelmed by rhetoric and wrangling over NI and I sense that a lot of interesting policies are muffled under the force of loud ElectionLive!-type of reporting.

It’s pretty old news already but the two ‘main’ parties have each proposed something interesting on progressive banking. I’ve only looked at this a bit, so if anyone knows better please correct me.

Cameron’s Big Society Bank wants to use the unclaimed money from dormant bank accounts as a base for attracting ‘ethical investment’ bonds and the likes, which will then lend money to social enterprise bodies, who will then invest in social enterprises. It’s an investment bank rather than a bank for lending to people. The idea of using dormant money already exists – at the moment it goes to the national lottery fund, which then lends to charitable organisations to lend to charities. So that’s hardly new.

As for the principle removing the state from care, there must be a worry that relying totally on profit making charities (social enterprises) will affect what type of care is delivered and how. It seems like a useful way of promising care without promising half of the investment needed. I want to know what Will thinks about this, since he’s the one with a street-level view.

Brown’s Post Office Bank is so nearly brilliant, but then, being New Labour it can’t help but slip up in a crucial way. It’s less an investment bank and more a high-street lender. The focus is on lending at normal rates to poor people who are normally charged extortionate rates. This is heady news indeed and could be a step towards reform that will break the massive power of elite private finance firms, who act as cartels when setting distorted high interest rates to poor people. Yet rather than keep this as a public service, it is a join venture with the Bank of Ireland (who were given the contract to provide financial services through the post office a while ago).

So the profits made from expanding finance to the majority will be channelled up into the hands of a tiny elite, all of this using public money. The Post Office Bank will invest in credit unions, but why not make the Post Office Bank a credit union instead. That way the profits could go back to members and would have the majority wielding the financial power of a big bank.

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2 thoughts on “The Big Society Post Office bank

  1. interesting post (sic)! but i think you’ve missed a couple of crucial facts about what the Tories and Labour are proposing:
    The Big Society Bank is actually very similar to the Social Investment Wholesale Bank that Labour are planning. The name is different, but apart from that there’s not a huge amount that (as far as we know) will be very different under the Tories. As i understand it, they will both be wholesale lenders (ie to community finance bodies to lend on to social enterprises and charities) and they will both receive initial capital from dormant accounts.
    Labour’s proposals (actually they are government proposals…we’ll see what Labour’s manifesto says…) for post office banking has the potential to go a long way to tackling financial exclusion. You asked why not turn the post office into a credit union – aside from the fact that the post office does a lot of things a credit union doesn’t (and wouldn’t be allowed to) – it would be fantastically expensive. The proposals wouldnt see the post office investing in credit unions. the investment would come through a tax on banks (though the details of how this would work are unknown and the budget commited to ‘consult on options’). The national network of credit unions would actually help to protect the post office as a national(ised) entity….not drain public money. And as for the Bank of Ireland deal sucking profits in to the hands of a tiny elite; the arrangements is for the Post Office to ‘front’ the services – which is far cheaper and simpler than having to become a bank (which is currently practically impossible to do…another problem!). I dont know what the detail of the PO/BoI deal are, but you’d have thought that any profit would be shared between the two parties.
    You have to consider the alternative – that people dont have access to affordable credit, mortgages, bank accounts etc. We’re already spending bucketloads of money on the impact of these things (funding for financial inclusion and regeneration etc) which is far less efficient than takcling the causes (a lack of access to basic financial services).

    In my view this represents good value for the taxpayer.
    you can read our policy briefing on the proposals and an analysis of what they mean here – http://tinyurl.com/ych2pvn

  2. Thanks Toby, good to get things much clearer.

    For me financial inclusion is only part of the reform needed. There needs to be a way of empowering the majority in how they enter the financial sphere. I’m interested to know, what would a credit union not be allowed to do and why would it be so expensive to run?

    As far as the partnership with Bank of Ireland goes, it still seems the policy does not go far enough. Half(?) of the profit made from including poor people into the financial sphere is channelled up to into the Bank of Ireland. Why not, as Unite and New Economics Foundation have asked, make it a publicly backed bank? The Post Office remains the ‘front’ but, even if the costs are bigger, the profits made are kept in the public sphere.

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