May I come in on that point? The world is filled with countries that have large mutual banking networks—the hard private commercial banking model in the UK has done nothing but create risk and massive profits and all sorts of problems. It was said that the banks have not done themselves any favours; some of the commercial banks have acted criminally in the past 15 years.
It is important to have a sense of scale. The bank will not transfer everything straight away. It will have £2 billion over 10 years, which will not change everything. I emphasise that this is the first step in creating an institution that should exist for many generations, as far as I am concerned. We should be more open minded about where it will go to; we may have a quite different lending framework in the future.
On the point about equity versus loans, I agree that microbusinesses and even most small businesses benefit from being near their banking and being close to people. One of the biggest failures in the banking network is the breaking of the long-term relationship between small businesses and the lending managers by a lot of banks. Those supportive and positive relationships helped small businesses to grow, but they are losing trust because of what they have read about how the banks operate.
The first thing to say is that the Scottish national investment bank is a bank, and it must operate like a commercial bank—I have said this over and over. If it starts to subsidise loan rates to below something that looks broadly like a fair market, it will get into trouble with European Union competition laws, so it cannot heavily subsidise interest rates to increase or decrease rates of return.
However, the bank could create a suite of lending and equity investment packages that are tailored to the demand that comes forward. For example, a housing association or a small community housing project might wish to borrow—if it can—mortgage style over 30 years; it would find that quite difficult to do with the existing commercial banks. We have modelled that costing; the Scottish national investment bank could lend over 30 years at rates that would comfortably come in under European competition rule problems but would enable mass public rental house building in Scotland, not by subsiding but by offering different forms of loans.
The bank could give other kinds of loan—there are examples—when it thought that, for example, a medium-sized business had a solid business proposal. If it recognised that the business’s investment was to be heavy and the time that it would take for the business to grow such that it got the returns might be a little longer, the bank could provide a phased package in which loan repayments started a bit lower and climbed over the relationship period.
On gender, the bank might very well give weight to certain public goods—for example, if it wanted more enterprises to be led by women. It might give a slight weighting to enterprises that did certain things that were particularly good for the economy. However, the loans must be commercial and the behaviour must still be roughly in line with the broad market.
The most important thing will be that the bank listens incredibly carefully to its customers and potential customers. It must arrange its lending or its equity into packages that are best suited to the enterprises and projects that it lends to. Once it does that, it will compete not by being cheaper but by being better and more aligned to the businesses’ needs. The bank should be intended to maximise not profit but development; that is where the value will come from.