Julian Knight: It won't be the big lenders throwing the next party

(REX FEATURES)

Some of the UK's biggest banks are now little more than dead men walking. For many, last week's horror losses signalled the death of the banking model that emerged at the end of the last century, based on surging levels of personal debt.

It was one hell of a ride. First we had the influx of US banks, chasing market share aggressively as they offered ever-larger loans and higher credit card limits. Under threat, the UK high-street names responded in kind and gradually our economy became a pyramid loan scheme – where the only way to keep our national wealth moving forward was to keep borrowing. Once the money markets dried up, though, the pyramid began to collapse. And as the horrific GDP figures showed on Friday, we are only in the early stages of the fallout.

What, though, will replace this model? Lord Turner, chairman of the Financial Services Authority, said last week that banks now need to prepare for "profound changes". He talked jocularly of "taking away the punchbowl before the party gets out of hand". In other words, there may be a bit of a credit binge again come the end of the recession, but it will be important to know when enough is enough. However, it may not be the banks that are playing host.

Tellingly, a super mutual was created last week with with the merger of Britannia building society and the Co-op. The emergence of the £70bn giant shows that the mutual model of doing business, once presumed dead, is very much alive. Meanwhile the Zopa money exchange, where individuals keen to lend are brought together with borrowers without recourse to banks or money markets, is doing very nicely. This shows that people are willing to organise their finances in a different way than they have done in the past. Mutuals have had their problems – some tried to ape the banks' lending binge – but they have had a reprieve and are no longer dead men walking.

The taxman isn't playing fair

I know public finances are in a mess but was there really any need for the Revenue & Customs decision to stop paying interest on money owed to taxpayers? It has justified the decision by pointing out that interest rates are at an historic low and taxpayers should not use the Revenue as a sort of savings bank by overpaying in the first place. However, if you find at self-assessment time that you have miscalculated and not made sufficient payment on account during the tax year, you will be charged interest at 3 per cent. I know: it's just happened to me.

If the Revenue acts in such an unfair way, it could give potential evaders some sort of justification. And this will only worsen the public finances.