Jonathan Reynolds: Let’s put co-operatives at the heart of Britain’s economic recovery after Brexit

When it comes to the impact of Brexit, no sector is more exposed than financial services – the UK’s major export by some distance. That’s why Labour is insisting that post-Brexit firms based in the UK must retain the ability to operate freely across the EU, and be able to continue to recruit the best talent from around the world. However, this desire to retain jobs and tax revenue in the UK does not mean we seek a financial services sector unchanged from what we have today. Far from it – there are still many challenges in terms of competition, inclusion and social justice we seek to address. At the Co-operative Party economic conference, In Our Interests, I will set out some of our plans to achieve this.

As political events of the past 12 months have clearly demonstrated, too many people feel left behind by our modern economy. Collectivism and collaboration underpin the Labour movement, and I believe they can also provide many answers to this economic and social challenge.

Co-operative business models give people a stake in their work, and it is Labour’s ambition to double the size of the co-operative sector. Whilst the UK co-op sector is currently worth an impressive £37bn, this pales in comparison to other global economies – it is just a fifth of the size of Germany’s co-operative sector, for example.

The business case for boosting this figure is compelling. Our co-operative sector has grown by 15 per cent since 2010, which is faster than the rest of the economy. Critically, the evidence suggests that co-operatives are more resilient than conventional businesses. Twice as many co-operatives survive the crucial first five years as other businesses.

What’s more, worker-owned companies have a clear productivity advantage over their counterparts. At a time when the government is scratching its head over a persistent productivity gap, now is the time to provide the supportive regulatory and legislative framework to help co-operatives thrive.

I want to give a commitment to the development of mutual guarantee societies in the UK that could give a huge boost small and medium sized businesses. Mutual guarantee societies allow businesses to come together through a co-op and access finance, providing security for one another and a guarantee for the lender. Across Europe around eight per cent of small businesses use a mutual guarantee society to access finance, and they currently have a portfolio of 80 billion euros, making this a tried and tested approach.

I also want to see much greater plurality and diversity in the financial sector. We need this both to serve customers more effectively  and to withstand future shocks. However, we still have some way to go on achieving this. ‘he big four UK banks hold 77 per cent of personal accounts and 85 per cent of business accounts, and all but one is head-quartered in London. Shamefully, we still have 1.5m people in the UK population who are without a bank account at all.

We need to learn from alternative models to see how we can address this. The shape, ownership and governance of the German banking system, for example, is a world-class example of co-operative and regional thinking at work.

Their network of regional and co-operative banks provides much needed diversity, stability and lending – and their primary goal is not always to maximise profit. Practices such as statutory high street presence, financial education, SME lending requirements and community reinvestment hugely benefit local communities, underscoring the benefits of diffuse ownership models.

It is an unintended consequence of financial rule making post-economic crisis that the UK’s regulatory framework and capital requirements now all but rule out the creation of new building societies. I want to explore ways in which we can help stimulate a new generation of building societies. In tandem, I believe we must ensure that existing banks understand, and are able to demonstrate, their responsibility and role in society.

For example, my fellow Co-operative Party parliamentary colleague Chris Evans tabled a private members bill in the last parliament which aimed to introduce a “social performance rating” for banks. This rating would sit alongside new duties such as a fiduciary duty for customers, not just shareholders, financial education requirements, and standardised and usable lending data so that it is easier to identify under-banked and financially excluded groups.

These last two points, on education and remedying the situation for those closed out of the banking system, go hand in hand. I believe proper and impartial financial education must be provided to children throughout their schooling as a meaningful part of the national curriculum. This will not just help to prevent financial exploitation of the most vulnerable in our society, but will also equip everyone with the knowledge to make the best financial choices for their circumstances.

We should be more ambitious about what can be achieved here: resilient, high-productivity businesses in an economy that is fairer for everyone, and in which everyone participates. By working with both the business community and the financial services sector on the benefits of co-operatives, I believe we can confidently progress towards those goals.

Jonathan Reynolds is the Labour and Co-operative MP for Stalybridge and Hyde, and Shadow Economic Secretary to the Treasury