Tuesday, 15 October 2013

Measuring Progress at the British Business Bank – beyond GDP

This blog by Charles Seaford discusses the recommendations for a state owned business bank from the Good Jobs Taskforce that is presented in the report 'The British Business Bank'. 

By the end of next year, the UK government’s British Business Bank, currently under construction, will have landed. It’s mission? To boost the UK economy by increasing flows of finance to our cash-strapped small businesses.

It’s good news, for sure – but is that all the new institution could do? In a recent report, the new economics foundation (nef) makes the case for dramatically extending the mandate of the British Business Bank. We argue that its core purpose should be to support not just any small businesses, but specifically the kinds that create good, sustainable jobs. That is, jobs that deliver high well-being, contribute to a fairer society, and will remain viable as we move to a low-carbon future.

It’s an easy objective to state. But the details matter. That’s why our report aims to prove that it is possible in practice to create and deliver against a new set of economic policy objectives, beyond simply growing GDP or reducing unemployment.

All this means particular attention has to be paid to the bank’s performance indicator framework, which will be used to guide lending and investment decisions. For these will need to take into account questions such as: how good an employer is the loan applicant? How does its environmental record compare with other similar businesses? Is the business in a sector that is financially sustainable given global trends? What impact will it have on the rest of the regional economy? The report goes into a lot more detail about what such questions mean both for the indicator framework and targets set for the bank’s managers, and for the kind of products and processes they use.

It is important that the bank serves all parts of the country and the indicators would need to be constructed on a regional basis. In addition, international experience suggests the bank should work with a network of partner regional banks. Unfortunately the latter don’t exist in the UK – one of the UK economy’s big problems. However, we do have a possible way of dealing with this: it may be possible to break up the Royal Bank of Scotland (currently 82% owned by the state) to provide the necessary network of branches. This would have a number of other benefits – above all bankers who understand the localities they serve – and we are investigating just how feasible this would be.

Discussion of banking performance indicators may seem a rather dry topic – but this is the kind of low key policy lever that could make a big difference to people and small businesses for years to come.

Charles Seaford
Head of the Centre for Wellbeing at the nef (new economics foundation)

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