LABOUR’S proposals to redesign the banking industry so it serves the national interest will meet bitter opposition.

The City of London’s status as a global financial centre has been an article of faith for successive governments. Banking’s defenders point to the hundreds of thousands of jobs in financial services and the tax revenue it supplies to the Exchequer (though when banks boast about how much tax they pay, it’s best to look at the small print: £31.4 billion of 2017’s City of London tax contributions were via “employment taxes,” thus including the income tax paid by staff, compared to £11.6bn in corporation tax on the actual profits).

This rosy-eyed view ignores the vast sums in tax lost to the Treasury because of the “financial services” the City provides. Nor is a banking system geared around maximising shareholder profit delivering for the productive economy: the Tax Justice Network’s Nicholas Shaxson has pointed out that around 60 per cent of all bank lending in Britain is to other banks and financial institutions, the next biggest slice (15 per cent) went into property to put boosters under Britain’s rocketing housing prices and just 3.5 per cent went to manufacturing.

The fragility of an economy built on financial speculation was demonstrated by the bankers’ crash of 2007-8. Aside from the extraordinary damage the crash inflicted on us directly, Gordon Brown’s bailout of the banks with our money loaded the Treasury with debt that became the excuse for Tory “austerity” attacks on public services and the welfare state. And despite the huge public stakes in the banks we obtained the ideological commitment to privatised banking survived the credit crunch unscathed: Brown did not take over management of the bailed-out banks and they were soon back to indulging in reckless speculation and handing out obscene pay packages.

That’s why we should welcome John McDonnell's announcement yesterday. Not only will Labour put the kybosh on Tory plans to sell off the rest of RBS (in which the public retains a 62 per cent shareholding, down from 70 per cent last year after the Tories sold another tranche of shares to speculators at a £2.1bn loss to the taxpayer).

It will go further and “completely overhaul” the bank’s management, giving it a new mandate to “end the abuses of the past and focus its activities on productive investments.”

This will not be a one-off but part of a strategy to develop “a new public banking ecosystem” which also includes backing for a Post Bank – a policy long advocated by communications union CWU, which would see the Post Office develop the largest network of bank branches in Britain, addressing the lack of access to banking services by elderly and vulnerable people as a result of branch closures.

Post Banks have proved successful revenue raisers for the postal service in Italy and France while providing a more trustworthy alternative to the major high street names. Labour’s plan would also increase footfall in town centres, addressing the death of the high street on the Tories’ watch and allow government at various levels to direct finance towards useful goals – from helping “SMEs, start-ups and co-ops” to “promoting vital national priorities.”

Given the catastrophic failure of Britain’s current financial model, this plan will attract widespread support. But the usual suspects will claim interference with the market cannot be tolerated. Confederation of British Industry boss Carolyn Fairbairn was intoning the old pieties earlier this week, ridiculing plans for public ownership of rail and water as expensive and liable to cause “profound harm to the economy.”

The minority who profit from Britain’s broken economic model will not let go without a fight. But Labour is right to challenge the Thatcherite assumptions behind our unregulated, out of control financial sector. Delivering a fairer Britain will require public control and direction of lending and investment.