“We are continuing to protect consumers while recovering significant amounts of the taxpayer money used to ensure financial stability during the financial crisis.”

John Glen MP, Economic Secretary to the Treasury

The long shadow of the 2008 financial crash is gradually moving away from the banking sector. The news that HM Treasury has negotiated a £5 billion sale of the remnants of Bradford & Bingley and Northern Rock leaves just its 62% stake in NatWest group in Government hands. If the market’s fears about inflation (and therefore interest rates) are right, the UK government will make a tidy profit from that stake, which is already worth c. £14 billion.

As UK chancellor Rishi Sunak limbers up for his Budget on 3 March, the future of this NatWest stake could be a useful contribution to his quest for economic responsibility in the wake of the pandemic.

So in this commentary we ask: is the UK banking sector rediscovering its mojo? And we look at a radical step forward towards major growth in the quantum of affordable housing.

The Government safety net, which scooped up the banking sector after the financial crash not just in the UK but across the free world, was a wonder to behold.  RBS (NatWest) was right at the centre of the storm, following its reckless expansion under Fred Goodwin; but Lloyds was also 43% owned by Government at the peak. Barclays only escaped following some questionable derring-do in the Middle East negotiated by Amanda Staveley, the reverberations from which continued in the High Court until last week. It was an extraordinary set of rescues, and a major transfer of risk from the private to the public sector.

The Bank of England came to terms with the deflationary impact of the crash after a few months’ hesitation and interest rates swiftly collapsed to record levels, staying there ever since. In my view, this was largely due to the concurrent technological revolution which has demonetised demand and injected immense virtual supply.

The impact on banking profitability was immense: conventional interest rates leave lots of room for margin, but the last ten years have knocked easy pickings out of the way. To make matters worse, the regulators have taken the opportunity to eradicate dubious practises such as PPI, and the write-offs have been substantial.

But the tide could be turning for the banks. Over the past six months the NatWest share price has moved from 93p in September 2020 to £1.84 by the end of last week. Meanwhile, Lloyds Banking Group has recovered from 24.6p to 39p over the same period. No wonder HM Treasury was able to make those disposals.

However, it's not just technology that could act as a deterrent for edging rates upwards: there’s also a real incentive to get some of those £300 billion locked-down personal savings on the move, as the economy starts to recover. Even if inflation starts to stir - unlikely, with the exchange rate so strong, notwithstanding the technology dividend - the Bank of England may not wish to follow too quickly.

It is, of course, vitally important to the United Kingdom to keep our large financial sector strong. Muscles are clearly being flexed in the European Union with the intention of dragging business away from London by fair means or foul, and Andrew Bailey is right to raise concerns - particularly for the derivatives clearing market. In the long run, however, protectionism never wins; and the lethargic vaccine roll-out in the European Union has shown that the Commission is well behind the curve in getting their economic recovery underway.

The housing market has, of course, been the mainstay for UK High Street banks and building societies for decades, and it was immense buying power fuelled by mortgages which drove property prices upwards long before interest rates fell back so precipitately. However, this has also caused a huge shortage in affordable housing: the Church of England has estimated that more than eight million people live in substandard housing, while home ownership - and independent living - is denied to very large numbers of young people.

At an informal session of the General Synod on Saturday 28 February, the Archbishop of Canterbury announced a major initiative called ‘Coming Home’ in order to address this housing crisis. Putting its money where its mouth is, the Church Commissioners will seek a change in charity law in order to use church land (the Church is one of the UK's largest land owners) for social and environmental benefit, not just economic.

This very comprehensive report is directed at all interested parties: including Government, developers and financiers, and it seeks a radical expansion of affordability related to income rather than property prices. The Housing Commission which has produced these recommendations includes leading figures from professional bodies and housing associations, and has considerable momentum to achieve its 20-year programme to improve the quality and affordability of the nation’s housing stock.

Let's hope UK banks rise to this challenge, and provide similar foresight in providing financial solutions to help people take advantage of this initiative.

Gavin Oldham OBE

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