ED Miliband has said a Labour government would create a North East bank to help struggling firms access much-needed finance.
In a speech hailing the early days of Northern Rock, the Labour party leader told members of the British Chamber of Commerce that he wanted to rebuild the model of the local bank which underpinned Northern Rock’s success before it was ruined by “gambling in the City”.
He said: “Britain needs a wholly new banking system. And to understand how to build one, we need to understand the root of the problem.
“Because these problems are decades old. In the 10 years before the financial crash, 84% of the money lent by British banks went into property and financial services. As an example, just think about the transformation of Northern Rock.
“Founded as a proud mutual, with a clear mission to serve the people and businesses of the North East of England.
“A century of success. Ending in an ignominious collapse caused by its gambling in the City and in the property markets, rather than its old commitment in the real economy.”
Under the last Labour Government regional spending was dominated by development agencies, with One North East spending more than £200m a year.
While the party will not be bringing back such region-wide spending groups, the banks could in theory match those geographic areas.
Mr Miliband added: “I believe we need a regional banking system, reaching out to each and every region of the country. Regional banks, with a mission to serve that region and that region alone. Not banks that like to say no but banks that know your region and your business, not banks that you mistrust, but banks you can come to trust.”
Regional banks modelled on the German Sparkassen institutions are among the recommendations of a report by Labour’s Small Business Taskforce.
It identifies poor access to finance as a key barrier to growth – with many firms forced to use credit cards and overdrafts to fund expansion.
The policy of regional banks is not a Labour first. In the run-up to the last General Election the Liberal Democrats made clear they liked the idea, and more recently Hexham Conservative MP Guy Opperman has been pushing for legislation to encourage local banks.
Last night Liberal Democrat peer Lord Shipley, the former leader of Newcastle Council, welcomed the move.
He said: “I’m strongly supportive of any thing that strengthens regional lending. As Government continues to devolve more and more responsibility to English regions, it is important we do what we can to drive growth in those regions.”
The North East Chamber of Commerce has also given cautious approval, saying the German model may not be the right path for England, but that lending needed to be addressed.
Ross Smith, the regional chamber’s director of policy, said: “There is a lot of detail still needed before we get a sense of whether this will work.”
The Hannah Mitchell Foundation, a campaign for northern regional government, warmly backed the call.
“This is the sort of radical and creative thinking which Labour needs to do more of,” said the Foundation’s chair, Barry Winter. “Northern businesses and people with new ideas need the support of a banking system which understands the needs of the region. We simply don’t have that at the moment.”