Progress | Centre-left Labour politics

Rock steady

Bringing Northern Rock back into the mutual fold would be good for the bank and fly the flag for a better financial sector

Print Friendly, PDF & Email

More than three years have now passed since Northern Rock was taken into state ownership, becoming the first British company to be nationalised since the 1970s, following the first run on a bank here since the 1930s.

Northern Rock’s road to failure was marked by reckless risk-taking, rash lending and chronic mismanagement. Ironically, these characteristics are the antithesis of the 19th century mutualism from which Northern Rock was born: its antecedents are two building societies created to serve their members, rooted in their communities and fulfilling for thousands of working men and women a fundamental human desire – to own a home.

Mutuals played a crucial role then, and must be allowed to do so now as firms whose very nature embodies our values of cooperation, democracy and community.

On the centre-left, we have too often shied away from defining what ‘good capitalism’ looks like, and focused too little on the role of corporations in society. Here, mutuals offer an important guide: accountable to their customers, maintaining strong links with the communities they serve and having a good record for customer satisfaction which contrasts favourably with the big high street banks.

With consolidation both before and since the crash, consumer banking has become dominated by an ever smaller clique. Inevitably, forced break-up and branch sell-offs will create space for new entrants and go some way to boosting competition and choice in the sector. But we must go further – the last thing we need is a return to the status quo.

Mutuals’ traditional business model involves less risky financial activity. It offers a powerful touchstone of consumer-oriented finance, working in the interests of people rather than a small clique in the Square Mile. It is instructive that Northern Rock and its antecedents were successful for 150 years as mutuals, but lasted only seven years after floating on the stock exchange.

Will reconstituting Northern Rock as a mutual be easy? Clearly there are challenges – not least in ensuring that we get the best deal for taxpayers – but these can be overcome. A recent report by Landman Economics demonstrated how the taxpayer’s investment can be recouped more effectively through remutualisation than through a private sale. The carpetbagging which was so devastating to the mutual sector in the 1980s can be avoided with a clause preventing new members benefiting from demutualisation.

Two major building societies have already expressed an interest in buying Northern Rock. If the chancellor does not choose to reconstitute the bank as an independent mutual in its own right, why not restrict its sale to a buyer already operating in the mutual sector?

Remutualising Northern Rock has long-standing support within the Labour party and was in our 2010 manifesto; our sister party, the Cooperative party, is a long-term advocate. But there is now a wider consensus growing that includes coalition MPs and which is calling upon the government to back up the coalition agreement’s promise to ‘foster diversity in financial services, promote mutuals and create a more competitive banking industry’ with a commitment to return Northern Rock home to the mutual sector where it rightly belongs.

Photo: Dominic Alves

Progressive centre-ground Labour politics does not come for free.

It takes time, commitment and money to build a fight against the forces of conservatism. If you value the work Progress does, please support us by becoming a member, subscriber or donating.

Our work depends on you.

Print Friendly, PDF & Email

Chuka Umunna MP

is shadow secretary of state for business, innovation and skills

1 comment

  • Not all mutuals are “good”. Have a look at the salaries that Nationwide board members pay themselves whilst offering sevices that are inferior to HBos/Lloyds. Even if there was a medium sized mutual interested iin a joint venture with Northern Rock they would end up with a credit rating not a million points away from that of Ireland and Greece. In case you haven’t noticed the cheap government funding which many banks (and Northern Rock) need will end in about seven months. A poor rating will make it impossible to compete with the bigger banks with a stronger asset base. Therefore no Northern Rock. How does this provide a return to Britain plc?

Sign up to our daily roundup email