Ed Miliband must try harder on financial services

In his keynote address at the Fabian Society’s Next Left conference, Ed Miliband set out the broad outline of his alternative economic vision. At its heart was an indictment of the lack of regulation on financial services, and the UK economy’s over-reliance on the financial sector. In this regard he differs from his predecessor as Labour leader Gordon Brown, as well as the coalition government. But simply asserting an alternative approach does not necessarily bring it any closer to reality – crucial questions about Miliband’s understanding of the financial system remain.

Financial services were at the epicentre of the economic downturn, and the fiscal crisis which followed, but have also been a major source of prosperity for the UK economy in recent years. The sector also provides many products and services people could not and would not want to do without. Should individuals refrain from saving and investing in financial products? Without an answer to questions like this, it will be difficult for people to imagine how Miliband’s alternative vision would make a difference in their real lives.

A good example of this dilemma is personal debt. Miliband’s speech referred to the tragedy of personal debt for many people. This is a problem which afflicts young people in particular: according to the recent ONS report Wealth in Great Britain, 1 in 4 households where the referent person is aged 25-34 has less than minus £2800 in net financial wealth. The FSA baseline survey shows that the same number of those aged 20-29 have borrowing (excluding mortgages) which is greater than 300% of their monthly income.

We know where the coalition government, and seemingly the Bank of England, stands on this issue, although they have not said so explicitly. For Cameron and Osborne, people should be spending, not saving, as part of a private sector-led recovery. They have been relatively quiet on personal debt – even though the way that debt exposed millions of people to the financial meltdown became a key reason why the electorate lost faith in Labour’s economic stewardship. It seems that the Conservatives are not going to tackle personal debt to any significant degree, because ultimately, in an age of public austerity, they have few alternatives to consumer spending as a source of economic growth – the delay in publishing the growth white paper tells us this. Private profligacy therefore remains vital, and it stands to reason that spending will be funded at least to some extent by personal debt.

Herein lies the real challenge for Ed Miliband’s leadership. Grand statements about the City and bankers’ bonuses don’t help people to make decisions about their actual economic circumstances. Should we be spending, and going into debt to do so; or should we be saving, and going without? Invariably, both approaches involve engaging, intimately, with financial services. For any alternative to be taken seriously, Ed Miliband needs urgently to put flesh on the bones of his vision.

A version of this article originally appeared on the ILC-UK blog

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