The Big Society – my optimism continues

In general, I found the mood music to be excellent–they are saying all (or mostly) the right things–and as the time for action approaches I am maintaining my optimism–but not without trepidation. In simple words, I am hopeful but nervous.

The source of my hope is the language and process Hurd and Wei are going through. If the consultation process is not a sincere one they are wasting a lot of time on it. In fact, I think it is very genuine and they appear extremely open about what the BS Bank will and will not do. Despite calls from prestigious practitioners (including folks like Ronald Cohen) for a broader remit, Hurd has been especially clear that it absolutely will be a wholesale institution. He has staked considerable credibility on this claim and has been consistent about it from the start. I agree with him and believe him–to do otherwise would ensure it was disruptive.

Two aspects of their comment today intrigued me. The first concerned the ‘development of new market opportunities for finance’. The public sector will be substantially opened and many old activities will be operated and financed differently. This will create a large pool of social or community enterprises requiring significant capital to take forward. That is an open invitation to banks to get stuck in–something socially useful to engage in.

Also, the facilitation of large scale retail financial products is clearly on the agenda. Bankers around the table made all the usual noises about the risks in doing so but “methinks they dost protest too much”. These obstacles are straightforward to circumnavigate and the opportunity for simple, large-scale savings products sold via high street banks is enormous.

I was more concerned about signs that fiscal incentives are on the agenda at some point in the future. I wish they would take them off the agenda. They are a bad deal for taxpayers, highly distortive and not at all the way to move this forward. The example given of the VCT structure filled me with horror. This subsidy was targeted at the rich, incredibly generous and only depressed VC returns. “Please do not go there”, I urged.

There was also much call for government in the form of the BS Bank to “cornerstone”. To cornerstone is to lay a foundation for something, to be part of the creation process. This is not what the BS Bank should be doing. Rather than pick winners from the start (highly distortive) they should be rewarding those who have got far ON THEIR OWN, by helping to drag them over the finish line. This is a great way to use scarce capital. The alternative, actually to become the cornerstone investor, puts a premium on lobbying skill as opposed to rewarding hard work.

On balance, at least a seven or eight out of 10. I am still very encouraged. Fingers crossed.