Gareth Thomas: Taxpayers saved RBS – so let’s return it to us as a People’s Bank

Philip Hammond should use his upcoming Budget to announce the long-term future of Fred Goodwin’s former employer, the Royal Bank of Scotland, as a building society: a People’s Bank, owned by the very taxpayers who bailed it out.

It will be some time yet before RBS can stand on its own two feet again, but turning it into a building society as opposed to another shareholder-led bank would inject a serious dose of competition into financial services when banking is currently little more than a classic oligopoly.

Whilst there have been many reforms to banking since the 2008 crash, one fundamental problem hasn’t altered, and that’s the lack of competition among the big lenders. There have been numerous banks setting up online or on the high street, but these are a long way from gaining the significant market share needed to challenge the big four of Lloyds, Barclays, Santander and RBS.

The Competition and Markets Authority recently underlined the adverse effects on competition in personal banking, basic current accounts and SME lending caused by the combination of persistent concentration in the market and barriers to entry and expansion, noting that banks have limited incentives to compete on price and quality at the moment.

Building societies such as Nationwide are still significant players in the residential mortgage part of the banking market, with the sector representing a third of all mortgages provided in the last quarter of 2016, but the demutualisation of some of the then largest societies in the 1980s, and then their takeover by banks, seriously eroded competition in key parts of the financial services and banking industry.

Given the benefits of building societies and mutuals in helping to generate competition in banking and, crucially, long-term stability in financial services, creating a new building society or mutual bank would provide the chance to create a new entrant to Britain’s banking market with the market share to make a difference. It would have an ownership structure that meant it still had to be profitable yet not focussed on short-term returns.

Across Europe mutual banks play an active role in challenging shareholder-owned banks, focussing on personal and small business customers, with their core values of solidarity and proximity. It’s part of the reason why European banking markets didn’t have the same level of problems in 2008 as the City of London.

Together as taxpayers we saved RBS nine years ago. But, since then, it has been a long, slow path to turning around its fortunes, still failing the Bank of England’s stress test last year.

Ministers often look divorced from reality these days during Brexit negotiations, so it may have passed many by that the government did actually persuade the European Commission to accept their proposals to prevent RBS from having to sell off more than 300 branches under the revived Williams & Glyn brand.

Last month, the European Commission accepted the joint Treasury and RBS proposal that will instead see RBS pay some of their business customers to switch accounts to rivals, as well as putting money into a fund to support challenger banks.

A rare success for a government otherwise flailing in negotiations with the EU, some might think. I disagree, and see this as yet another missed opportunity to bring about genuinely meaningful change to our banking sector.

Support to enable challenger banks to expand is not a bad idea. But it just isn’t going to create genuine competition in financial services anytime soon. Key to having a competitive banking market is having different types of financial institution – traditional banks, yes, but also building societies and mutual banks as well.

The Co-op Party will meet for our annual conference this weekend to celebrate our centenary and discuss the theme of “Ideas to change Britain”. We have long thought that questions of ownership and governance are crucial to ensuring we have an economy that puts people first, and we will continue to champion these values as we look at how we can reform the banking sector.

Ministers must not let another opportunity pass us by. It’s time Philip Hammond used the Budget to turn RBS into a mutual bank.

Gareth Thomas is chair of the Co-operative Party and MP for Harrow West.