The Bank of England has been urged to fund local and community banking, in order to ‘level-up’ the UK economy after the COVID-19 pandemic.
In a new report out today (22 June), The RSA warns many of the current emergency schemes are neglecting communities and are overly focussed on larger banks.
Instead, it calls for a new approach towards the third sector, start-ups and local banks are needed to ensure the survival of communities after the pandemic.
It argues that a focus on community banking would ensure that financial support is getting to those who need it most.
In particular, the report calls on the Bank of England to create an endowment fund for community stakeholder banking.
Known as a Local or ‘Levelling-Up’ Investment and Finance Trust (LIFT), this would support the long-term resilience of the financial system. Local authorities would be encouraged to apply for and hold LIFT funds to support the UK’s growing number of community banks, alongside banking services driven by social entrepreneurs in their area.
The report calls for LIFTs to form part of a wider package of support for community banking, such as providing match funding to councils, allowing shares in mutual banks to be eligible for Enterprise Investment Scheme allowance and other tax reliefs. Barriers to regional banks cooperating in networks created by UK competition law should also be reviewed
And it also recommends new legislation to protect free access to cash.
The pandemic has accelerated a shift towards digital and contactless payments, but 8m people in the UK would find life near impossible without cash, according to the report.
To ensure that vulnerable groups can still access services, the government should legislate to ensure that access to cash is protected, and that cash is still accepted by the retail sector.
‘If the government is serious about levelling up Britain it needs to reshape Britain’s banks,’ said the RSA’s director of economy, Asheem Singh.
‘Our levels of regional equality are comparable to those in Germany at the fall of the Berlin Wall. This is in part because banks are not lending enough to small businesses and individuals, and are instead focussing on safe products like mortgages. Branches and ATMs are leaving our poorest communities.
‘The government depended on businesses to distribute its COVID-19 loan scheme and that meant that cash it didn’t get quickly enough to businesses that needed it most. Good businesses have gone under, not because they were unviable, but because they banked with the wrong bank. Government must take responsibility for this, but so must the banks, who had sufficient headroom to loosen their lending criteria.
‘Enough is enough. We at the RSA have put our money where our mouth is and supported the creation of a layer community banks across the UK. From Plymouth to Preston, mutual banks are emerging, one at a time. We already have support in this endeavour from opposition parties, but we want the Government to become a key player in this movement.
‘We urge the Bank of England to create the conditions for a new layer of local banks. LIFTs – local investment and finance trusts – would capitalise local community-owned financial vehicles, with managers who know their communities. LIFTs could be influential in creating jobs, wealth and career progression in financial services outside of the square mile.’
The full report – The Road to Resilience: how community financial services can help level-up Britain – is available to read here.
Photo Credit – Nattanan23 (Pixabay)
Leave a Reply