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.