A new social contract
No two crises are alike, but the 2008 financial collapse holds lessons for the current day that banks and bankers should study carefully, says James Kirkup, Director of the Social Market Foundation.
Even before the coronavirus pandemic, business had a trust problem in Britain. Numerous surveys show that voters doubt whether business is good for them and their country. Fairly or not, much of this feeling is down to banks. The financial services industry is still paying for the bailout of the banks – paying a price measured in public distrust and resultant political challenge. Voters just don’t think the banks repaid the favour of that rescue.
Today, taxpayers are spending tens of billions of pounds supporting British business of all sorts, through wages for furloughed workers, emergency loans and other means. The vital lesson that businesses must draw from the financial crisis is that the public must have reciprocity. Business must find ways to return the favours of recent months, upholding their part of a new social contract with Britain.
After the crisis, many of the political challenges that existed before it will persist and only be amplified by economic turmoil. Places that felt ‘left behind’ and thus in need of ‘levelling up’ may well be in even greater need. Many workers will find themselves short of work, opportunities and the skills needed to start earning again. The generational challenge of climate change will still need to be addressed, by a government and households both short of money.
All of these challenges present an opportunity for banks and banking. Those banks which have national and regional operations should consider what more they can do for the towns and communities they serve. They should pay especially close attention to high streets. MPs of all parties know well that half-empty parades of shops are a powerful force in politics. Even relatively affluent voters can be persuaded that the country is on the wrong track when their local high street starts to feel empty and look shabby. To prove its worth to postcrisis Britain, banking should find new ways to answer those concerns.
“The vital lesson that businesses must draw from the last crisis is that the public must have reciprocity.”
As large employers, banks will have a role in supporting, paying and training workers. They should look beyond their own workforce to ask what more they can do to support others, in and out of work. Youth unemployment will be a major issue, as policymakers scramble to see how they can shield a generation of school-leavers from the lifelong scarring of early unemployment. Banks could do more to take on apprentices, to offer training and skills to all, and to help workers finance their own development.
The linkage between the virus and the climate is less obvious, but COVID-19 may well mean an even greater role for banking in mitigating the planet’s warming. Green finance is well-established at the level of infrastructure and major projects: banks have seized the opportunity to help finance clean power, for instance. But what about smaller-scale interventions?
Hitting the net zero carbon emissions target by 2050 (now set in law through an amendment to the Climate Change Act) will mean several major changes in the way we live: homes will need to be fitted with new heating systems; millions of charging points will need to be installed to charge millions of electric vehicles that have not yet been purchased. All of these things will, in time, deliver savings. Banks will have a role in helping to finance them.
These are difficult times for us all, and there will be many challenges ahead. Companies which are seen not to return the favour to taxpayers will pay a heavy price in lost trust. But those businesses that demonstrate that they understand the new context in which they operate – and act accordingly – will be rewarded by customers, investors and wider society.