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Can Darling kickstart lending?

Robert Peston | 08:39 UK time, Thursday, 20 November 2008

It's clear from comments posted on my blog that there's a widespread misunderstanding about what the massive taxpayer bailout of our banks was designed to achieve or could achieve.

Treasury buildingThe primary motive of the £400bn of additional taxpayer support provided last month by the Treasury was to prevent the collapse of the banking system (and really it wasn't such a bad thing to prevent a meltdown of most of our banks).

Or to put it more bluntly, the transfer to our banks of so much of our cash wasn't designed to kickstart lending by our banks - although it's unsurprising that many of you think that's what it was all about, because ministers created that impression.

The chancellor stipulated that recipients of the capital element of the bailout funds - of which £37bn has been drawn down so far - should maintain "over the next three years the availability and active marketing of competitively priced lending to homeowners and to small businesses at 2007 levels."

Which sounded very macho. And was politically necessary, because of a public sense of outrage that the banks should be propped up and yet give little back in return.

But what does "the availability and active marketing of competitively priced lending to homeowners and to small businesses at 2007 levels" actually mean?

It certainly doesn't mean lending at the same margin over the Bank of England's policy rate or Bank Rate, because for both mortgages and small-business loans that margin has soared - to reflect the increased risks of lending when the economy is shrinking and when many more businesses and individuals are financially stretched.

Obviously I can bore for hours about how mortgage providers are earning considerably more from providing scarce homeloans than they were only a few months ago.

But the only fact that you need to know about mortgages is that well over 50% of lending capacity in the mortgage market has been taken out by the problems at HBOS, the collapse of Bradford & Bingley and Northern Rock, and a freeze on new lending by small building societies.

The Treasury can shout all it wants to the recipients of capital from taxpayers that they must provide more loans to homeowners, but these recipients simply don't have the resources to fill the gap.

Which is why the pre-Budget Report on Monday is certain to contain measures designed to increase the flow of funds to our banks for transmission to homebuyers and homeowners in the form of mortgages.

Whether we like it or not, yet more taxpayers' money is bound to be thrown at reviving the mortgage market.

As for what's going on in lending to companies, the Bank of England's summary of business conditions, as prepared by its network of agents, blew the whistle on that yesterday. It said:

"Contacts reported a tightening in their own credit conditions since September. The all-in cost of finance had increased as set-up and management fees were raised and loans were increasingly priced relative to Libor rather than Bank Rate. Some contacts expected future cutbacks in facilities".

Or to put it another way, credit for business has become harder to obtain and more expensive.

Against that backdrop, the chancellor is considering giving increased taxpayer support to small business lending. As this morning's FT says, this is likely to involve an extension of a scheme that currently provides public-sector insurance (in effect) for 75% of the principal on some kinds of small-business loans.

The current scheme is tiny: it represents just 6% of all small-business lending of just under £6bn. So it would have to be massively expanded to yield serious benefits.

But this obsession with supporting small business may be a distraction from where the real weakness lies in corporate UK.

It's plainly important that as many small businesses as possible survive the current downturn, since they represent the future of the British economy.

However, they are not particularly indebted.

Many of them, very sensibly, have accumulated very substantial cash deposits.

On a net aggregated basis, small British businesses have zero debt. They are, to a great extent, well placed to survive our current economic woes.

Which cannot be said, I'm afraid, of all our bigger companies.

Our non-financial companies' gross debt is equivalent to 120% of our annual economic output. And much of that debt is concentrated in big companies in the sectors most damaged by the shrinkage of the economy.

From housebuilders, to national estate-agency chains, to construction groups, to property investors, to retailers, to restaurant and pub chains, indebtedness is at worryingly high levels.

The possibility that Woolworth could sell its entire chain of 800 stores for £1 and the collapse yesterday in the share price of the electrical retailer DSG are symptoms of a wider problem.

To repeat, the credit crisis is most acute for big British companies, not for small ones.

In the US, the Federal Reserve has thrown a $1800bn lifeline to substantial American companies, by agreeing to buy up their commercial paper. In effect, the US central bank is lending to them for up to nine months.

Our economy has huge structural similarities with that of the US. Draw your own conclusions.


Page 1 of 3

  • Comment number 1.

    Any guesses what the basic rate of income tax will be in 3 years, 5 years, 10 years and 50 years to pay for all this government borrowing.

    Every penny that this government borrows will eventually have to be repaid.

  • Comment number 2.

    past lending was being financed by the mbs market, which took loans off banks' balance sheets (and therefore were unaffected by bank capitalisation levels). this market is now dead, quite independently of the state of the british banking sector. until it is fixed, you can expect current tight lending conditions to continue. fixing it is beyond our government's control - it is an international problem.

  • Comment number 3.

    And what Mr Peston said came to pass. Not because of any great insight, but because Mr Darling told him so in an early morning phone call.

    It's interesting that you so easily dismiss the fact that the Treasury were somewhat economical with the truth that this bailout wasn't in part designed to encourage lending.

    They hand over £400 billion and make out that banks will lend more as a result, even though that's not the intention at all, it's just been done to deflect criticism.

    Reminds me of a certain "30 minute" claim from about 5 or 6 years ago.

  • Comment number 4.


    you are missing the whole point here and hence I fear you have never really had a real job or ran a business yourself

    the big companies are changing their payment terms and squeezing the smaller ones who when they go to the bank they are being nailed to the mast if they need to increase their borrowings - therefore the smaller comapnies are taking the brunt of the previous mistakes

    effectively whatever Darling does this will not change I am afraid to say

    get yourself out and about and have a chat with some small businesses instead of bleating behind the big headlines

  • Comment number 5.

    So (on the basis you are right about what will happen on Monday)

    - Sterling resumes its slide (more to do with Brown than Osborne, I'd suggest - and it's started today)

    - UK industry continues to contract

    - import costs rise, + reduced supply

    - result: inflation really gets going again next year

    What price an early election ...?

  • Comment number 6.

    "From housebuilders, to national estate-agency chains, to construction groups, to property investors, to retailers, to restaurant and pub chains, indebtedness is at worryingly high levels."

    That covers 95% of my customers.

    So that is why my turnover has dropped 80% since April. So now what?

    These businesses are the customers for most of the small firms in the UK. Small firms may not be in debt but who are they going to sell to?

  • Comment number 7.

    In the US, the Federal Reserve has thrown a $1800bn lifeline to substantial American companies. They have not disclosed who these companies are, but we know its not the big 3 automakers. Hmmm draw your own conclusions.

    Our government will harp on about supporting SMB's when in fact all they need is business. They will then continue to feed money to undisclosed businesses?? to ensure support and ongoing viability.

    So small business need consumers they cant find, big business needs cash and consumers they cant find, the banks need consumers to save and borrow, but all they want to do is save.

    As I have already stated, this is now not a prevention of lending causing problems, it is the refusal of people that are not prevented from credit lending anything

  • Comment number 8.

    Again Gov't focusing on the wrong things.

    How about a plan to rebuild Britains industry ?

    With no plan there is no hope !

    The service sector won't produce enough jobs.

    The Banks have been forced by the Gov't policy to make thousands of staff unemployed.

    They won't get new jobs in a hurry.

    So decimated financial services, and no plan to restore manufacturing industry.

    Expect the Pound to equal one dollar soon.

  • Comment number 9.

    Oh yes, are they still considering nationalzing the House builders ?

  • Comment number 10.

    Reminds me of the Daleks.....

    Nationalize...nationalize... we must exterminate jobs and competition !

    So where do their friends in SPain fit in ?

    With Santander of the Spanish property crash (underreported)?

    Will Spain be the next Iceland ?

  • Comment number 11.

    Good Morning.

    The reason why the Banks both wont and cant lend,is that the assets they have lent on are so overvalued.

    Asset values have been out of ratio relative to economic activity.GDP has been distorted Brown etc have claimed credit.

    Asset values are a Bubble which thank god are now deflating.

    Would you lend against a falling market?

    Why should the Banks.

  • Comment number 12.

    It can be done through government control banks like Nothernrook. But it should be done sensibly.

    If these banks lend at reasonable rate of interest there will be enough money to restart the economy and housing market as other banks will be forced to follow.

    It is fair to make people put 10% to 15% deposit but lend them at 0.5% above BOE rate.

  • Comment number 13.

    Sorry, but this latest Treasury Press Release masquerading as impartial BBC reporting cannot go unchallenged.

    GB and Ally D both made it very clear that in return for getting capital injections, banks were expected to start lending again. Linking that lending to levels in 2007 was inappropriate, but requiring more lending than was available in August/September clearly made sense, eg in August mortgage lending was 98% lower than a year earlier, clearly a case of overkill on the credit withdrawal front.

    If Ally D is now saying ths banks can't or won't increase lending, then we have to ask what is the point of rescuing the banks? Who benefits? The primary purpose of banks is to recirculate cash from those who are "long" of it, to those who are "short" of it. In other words, banks hoover up our spare cash in the form of interest bearing deposit products and lend it to those who need it for various reasons, eg businesses that have regular payments to make (eg salaries) but lumpier receipts from sales, or who have to grant credit terms to their customers. If banks are no longer doing this, then they aren't fulfilling any useful purpose, and the point about "it wasn't such a bad thing to prevent a meltdown of most of our banks" is no longer valid. In fact, if banks aren't fulfilling this basic recycling service, then injecting more capital into them is actually a waste of a scarce resource (capital), no different from the vast amounts of cash invested in companies in 1999/2000 that simply got burned up for no economic benefit. We'd be better served by government finding more attractive opportunities to deploy this capital.

    At the time GB and Ally D announced the bank rescue plan, they both explicitly said that it would free up the sclerotic credit markets. If they are saying the rescue isn't having that effect, they should now reconsider the rescue plan.

    If banks aren't lending, but are still taking in deposits, paying interest on them, running branch networks and call centres etc, then their business model is a one way street to bankruptcy. They have costs but no (or much lower) revenue. This fits in with the JPMorgan and UBS research out yesterday on prospects for UK and European bank earnings next year. As well as much lower earnings next year, JPMorgan is forecasting capital shortages will remain a problem.

  • Comment number 14.

    On the Subject of Borrowing.

    I have associates who earn circa 70K to 110K

    Many have mortgages in excess of 400K

    They have two or three cars on lease/hp

    They have credit card balances 40k to 70k

    This type of borrowing is reflected through the pay scale.

    What happens when they have no job?

    I wonder.

    The Fridges are usually EMPTY.

  • Comment number 15.

    the honest reason so much public money was pumped into banks was,

    1, to prop them up and help overseas buyers come in and get a bargain.

    2, to keep bankers from loosing there wages and to stop them crying about loss of earnings.

    3, as with anything this government does to gain the popular support by playing to the media.

    4, neu labour are not labour. the old labour would have nationalised and be damned, this government is confused they pretend to be labour but act like tories when pointed out they react like liberals.

    have the public not had enough of namby pamby confused governments that have done nothing but bring about ruin.

  • Comment number 16.

    We seem to have a preoccupation with borrowing, the same poison that got us here in the first place. I feel the world needs to go to Rehab.

    Small companies in many respects, are indeed well placed to come out the other end of the depression, but it cant be done by borrowing. Here's why: We are going from a recession to a depression, and that will bring deflation within 6 months or so. If you borrow today, tomorrow your repayments will INCREASE as a percentage of your business due to the effects of depression/deflation.

    My opinion is that any small business should slam the door firmly shut in the face of any bank that wants to loan you money. Its poison.

  • Comment number 17.

    How much longer is the government going to get away with blaming the USA for the financial problems in the UK. It is quite clear from your blog that a great deal has been caused by the actions and omissions of the UK Government and regulators.
    To quote the G20 summit communique that has been carefully ignored by Gordon Brown:

    Root Causes of the Current Crisis

    3. During a period of strong global growth, growing capital flows, and prolonged stability earlier this decade, market participants sought higher yields without an adequate appreciation of the risks and failed to exercise proper due diligence. At the same time, weak underwriting standards, unsound risk management practices, increasingly complex and opaque financial products, and consequent excessive leverage combined to create vulnerabilities in the system. Policy-makers, regulators and supervisors, in some advanced countries, did not adequately appreciate and address the risks building up in financial markets, keep pace with financial innovation, or take into account the systemic ramifications of domestic regulatory actions.

  • Comment number 18.

    Good point Robert. I guess people found it hard to understand why apparently so many small business say they are being squeezed or refused loans, if they are so well placed.
    However so many small shops and small business here locally in northamptonshire, are virtually deserted on a daily basis, I can't help but wonder how they manage thier commitments. I also have a friend who runs a telecomms business. All his customers have ceased ordering, literally overnight because they have been SPOOKED by what the Government have said. So how does he pay his engineers?
    Small businesses may have cash, but its the 30-60-90 day payment terms in contracts with customers most small businesses are hit by, leading to cashflow problems and not helped by the banks increasing transaction and overdraft fees.
    So why are the banks getting funding from the taxpayer when business does not? Bank shareholders could repay the shedloads of dividends they earnt in good times, back into the business, as so many small business men have to do themselves?
    And how are Messrs GB and AD going to manage the homeless and unemployed?
    With so many people out of work, who pays their mortgage and if they have to dump their homes, where do they live and who picks up the bill?
    Wouldn't it be in everyones best interest if the banks rent these homes (they repossess) as landlords back to their current occupiers?
    Saves the taxpayer shedloads of cash?
    Finally how are we all supposed to 'stand still' for a whole year and wait for 2010?
    People need to eat, which needs money.
    Robert, where will that money come from?

  • Comment number 19.

    With the recent investment in RBS and Lloyds TSB the Government has bought into the lending market, and is applying pressure to these institutions to reduce the cost of borrowing. Indeed, the Government has stated that it aspires to return the economy back to 2007 lending levels, and that the UK problem was not shortage of demand for homes at "the right price" but a shortage of mortgages "at the right prices for people to buy"[1].

    Considering media articles detailing how house prices will have recovered by 2013 [2], the average wage would have to explode to £45K p.a. to pay for the average property costing £200K, based on the following ‘prudent’ terms.

    - £20K deposit (90% LTV),
    - £180K borrowed at x4 multiple of income of £45K p.a.,
    - 25 year term.

    The Government need to state their aspiration for mortgage lending in 12 months time in terms of Loan-To-Value (LTV) ratio, multiples of annual income, and loan duration.

    If you agree, please sign this petition:

    This will provide a better understanding of their stance towards future lending, and enable the public to make their own judgment of the likelihood of lending regulation and reform.

    The short of it all is that it's a house price crash (not just flat and appartment) or a return to risky lending.


  • Comment number 20.

    I run my business conservatively, like my life! And I'll get through the recession with both intact.
    But the likelihood is I'm now going to find some of my larger competitors being helped out by the state..... and I'm going to spend the rest of my life paying higher taxes to fund the cost of other peoples wreckless lending and feckless borrowing
    Thanks Gordon you taught me a great lesson - once this recession is over I'm becoming a chancer!

  • Comment number 21.

    Mr Peston. Thank you. An excellent informative post.

  • Comment number 22.

    13 "In fact, if banks aren't fulfilling this basic recycling service, then injecting more capital into them is actually a waste of a scarce resource"

    Rescuing the Banks has a practical point - keeping the cash machines working so that there were no riots outside Tesco's. It was that serious six weeks ago.

  • Comment number 23.

    "Whether we like it or not, yet more taxpayers' money is bound to be thrown at reviving the mortgage market."

    Wonderful. It's nice to know that the tax I pay is being used to try to increase the cost of buying my first home.

    Increase the lending available to business? Yes, absolutely necessary. Don't use it to bail out BTL investors and second-home owners (the only two beneficiaries of higher house prices, as normal homeowners can only realise the "profit" that they've "earned" by selling up and living in a cardboard box).

  • Comment number 24.

    Don't worry, the great British consumer is heroically still attempting to reverse the tide of the credit crunch. Retail sales figures for October were much much better than expected,so if everyone is skint how can this be?

    2 Simple answers - Retailers are discounting like crazy and thanks to the wonderful Mr King it is now pointless saving money and expecting any kind of a return on it so get out there and shop, shop shop people, you have the power to save the entire world financial system!

  • Comment number 25.

    If as you state Robert, most small businesses are very well placed and have low debts compared to the large companies, then surely they would be a much better risk for banks to lend to, so why on earth are they putting punitive levels of interest on loans and overdrafts to them? The simple answer is that they need to pump up their profits on the backs of companies they know CAN pay up. The net effect though is going to drive those viable small businesses into the ground because of punitive rates on loans and overdrafts that even well capitalised small businesses need to keep their cashflows going.

    I think it is high time that we inform Gordon and Darling that if the banks continue to put their profits above everything else, given that they would not even be around without the huge levels of taxpayer support, that the Govt. will lend at competitive rates via Northern Rock. It is pathetic how they are sitting there all smug while the economy is going down the toilet, a situation they are largely responsible for.

  • Comment number 26.

    Hello Robert?

    As you are so close to the Muppet Show.

    Have you any idea when the puppets

    will call down the curtain?

    Have they seen the Fire BLAZE all around the theatre.

    The peasants are close to a revolt.

  • Comment number 27.

    Hi Robert: "although it's unsurprising that many of you think that's what it was all about, because ministers created that impression."

    Very euphemistic - "creating an impression" is getting people to believe a lie without, in a legal sense, telling it.

    On another point - using DSG and Woolworths as examples was a mistake, because both of these firms were in decline well before the credit crunch started. DSG for example had lost 90% of its share price since the dotcom bubble by early summer.

  • Comment number 28.

    Ive said it many times at what is clearly needed is that these banks with their toxic practices not assets needs to be allowed to fail and the fat cat staff and greedy shareholders put in the place where they belong,indeed there is a very good case for bringing criminal proceedings being brought against some of these people.The goverments then needs to through a complete new organisation set up a completely new structure to start to lend to good and proper run business to get the economy going and off course to protect the savings that people have invested in these toxic companies. Presently what these toxic banks are doing to the ordinary people of this country is nothing short of pure blackmail,it needs to stop and it needs to stop today

  • Comment number 29.

    Robert, I think you should meet more small business owners. I accept that “on a net aggregated basis, small British businesses have zero debt” but that glosses over the many (I would guess the majority) who do have borrowings.
    They are worried about their bank borrowings being reduced, business customers “going bust”, falling sales demand, rising costs as well as rising tax bills for the corporate sector and ever increasing red tape.
    Offers of help for small businesses by the Government have been little more than lip-service.
    Come and meet our business clients and you’ll know what is happening.

    P.S. Where may I see the "zero debt" statistics, please?

  • Comment number 30.

    Maslowian psychology predicts severe revulsion of the perceived cause when someone drops down the aspirational heirarchy, ie we start to loath NuLab.
    Housing is fairly low down the pyramid of aspiration, and the banks' making that difficult, even in theory, is going to cause ructions.
    As I said months back now, if bankers don't want to bank, then get rid of them. HMG has done its bit to prime the pump, but now it's time to clear the gunge which is still blocking the system solid, and that's the people with resource they won't use. It's what's bound to happen, and is happening, because they're being replaced by the Treasury. The end result is what I stated, functional nationalisation, but in the mean time the public's left exposed to their rapacities and simple greed - bonus time is near and the boyos are still hoping.
    And as far as corporates are concerned, use the ACT as a clearing house. The ECB is using their International Association in exactly this way, it's the logical next step if the existing system has to be junked.

  • Comment number 31.

    I'm a potential borrower, I do buy to let and very cautiously. No multi million property portfolio, I like to maintain about 50% equity, this means the latest fall in property prices is not too catastrophic.

    And I was looking at adding a property, I've got equity equalt o about 25% - 35% of the kind of house I stick to. I've found the ideal house, its a fair price. Now it comes to the mortgage.

    With interest rates at about 5.5% I could get a tracker at just over 6%. Interets rates fell to 5%, the trackers were no at 7%, then vanished. Now with rates at 3.5% trackers are just over 6%! And arrangement fees are over 2% of the loan value and solicitors etc fees over £1,000! Say £4,000 simply to make a purchase!

    This buyer, one of many who might start to get the property market moving has walked away. I have no interest in paying rates that in any other industry would be investigated by the fraud department.

    Also, all arrangement fees are about the same, perhaps a cartel that should be investigated?

  • Comment number 32.

    # 22

    Very true. But the solution now might just be to make Tesco the bank in order to keep the machines working. Not sure if they've got it yet, but Tesco have actually applied for a banking licence in the UK.

  • Comment number 33.

    "On a net aggregated basis, small British businesses have zero debt"

    RP - pleased to see you are reading your own blog and diversifying slightly from your usual Banking Broadcasting Service position.

    But - Where on earth did you pluck that barmy statistic from?

    as for this..

    "They are, to a great extent, well placed to survive our current economic woes"

    Have you completely lost your marbles?


  • Comment number 34.

    The real story is that M&S have diverted their container ships via the Gulf of Aden hoping that the Somalia Outlet for Distressed Stock will take their Christmas pullovers off their hands. Alternatively, you can acquire the same pullovers for 20% less today in store.

  • Comment number 35.

    Post 22. Drew. On the subject of Tesco, I am led to understand they have extended their payment period to 150 days.

  • Comment number 36.

    The reason that we are in recession is very simple, people have far too much debt so they can't take on any more. Based on this FACT, Darling has two problems,

    1. Convincing Banks to lend to your average Joe / Business, and
    2. Business / the average Joe having the balls to take on more debt.

    Its going to go down a long way until after all the repos and bankruptcies free up folks appetite for debt (if they EVER get that appetite back).

  • Comment number 37.

    My DEAR Sasha.

    Did i see the WORD of a LIE?

    I must go to the corner of the room.

    I must repeat the oath.




  • Comment number 38.

    The key problem is the absence of credit insurance the market.Te sentiment which drives this fear of major providers (Euler/Coface/Atrdius etc) in providng insurance is self evidently a perfect example of the self fulfilling prophecy.

    Most businesses have credit profiles which are largley strong and are well managed but are in sectors in which the sentiment amongst the insurers has irrationally disappeared.

    There are major areas of real risk mitigation which are completely ignored by the insurers in assessing risk and there are significant players in this market who can hugely reduce specific risk to well managed clients.

    Govy support for the lending thru new mechanisms does not require funding but simply what is in effect sovereign insurance of the credit profile of the key players in the market.Since the debt is secure and the national employment prospects are in effect already underwritten by the Goverment,the sensible course for all is for the wholesale provision of credit insurance to key small and medium/large businesses to reflect the true risks involved (maximally 3% to 5%) rather than rely on the gross loss of sentiment in the market to lose jobs,stock values etc etc.

    Lets use the scalpel not the cutlass.The patient will prosper if we use this and the Govt will save the economy without investing in the principal but focussing on the insurance of the margin

    The arbitrage between the actual risk and the potential value of the loss of insurance is equity in nature and price as we see from the effect on the retailers stock value collapse when credit insuarnce is withdrawn.That is where smart finance now is targetted.

  • Comment number 39.

    It's called bait and switch.

    Next trick please, bored now

  • Comment number 40.


    With regards to nationalising house builders, isn't it easier for the Government to get them to build more council (or Housing Association) houses then to nationalising the industry? I heard on the Today programme this morning that there are millions waiting for social housing according to Shelter.

    With the Tories now getting anal about public spending buttressed with the general election being potentially not far away I can't now see the Government building these homes and helping the building industry. It seems everyone, except the Tories, now realises that increasing public spending is not only inevitable but immensely desirable! We need to get the Tories back into fold - they didn't oppose the Government during the Iraq war fiasco so why oppose them now!

  • Comment number 41.

    #8 ‘Again Gov't focusing on the wrong things.

    How about a plan to rebuild Britain’s industry?’

    You can’t produce an engineer in six months. Not even in two years.
    Although it may take many years to achieve, 'The Change' as Mr Obama says, must start as soon as possible!

  • Comment number 42.

    Never has £400bn brought so little...

    So the entire 'we need cash to lend again' was spin?

    *blink* *blink*

    By the way, whats happening with Granite this morning?

  • Comment number 43.


    How on earth can you report this?:

    "Or to put it more bluntly, the transfer to our banks of so much of our cash WASN'T designed to kickstart lending by our banks - although it's unsurprising that many of you think that's what it was all about, because ministers created that impression.

    ...And in the very next paragraph report this?:

    The chancellor STIPULATED that RECIPIENTS OF THE CAPITAL element of the bailout funds-..-SHOULD MAINTAIN "over the next three years the AVAILABILITY and ACTIVE marketing of competitively priced LENDING to homeowners and to small businesses at 2007 levels."

    Am I the only person questioning this blatant and rather condescending contradiction?

    Wake up people - this is all becoming a really sick joke.

  • Comment number 44.

    Re Credit Inurance

    YEP it can still be had the rates are sky high.

    Ive abandoned doing it we are just taking the PILL.

    19,953,801 pounds sterling YTD. BAD DEBT.

    I must say thankyou to:


    And various Chief Executives

  • Comment number 45.

    Good analytics Rob.

    My only problem with your assessement is it does not deal with the inlfationary problems caused by simply printing all this money. The short term outlook for inflation is benign, I agree, but with money supply increasing exponentially and industry contracting (due to repayment of debt) the number of goods is going to contract, chasing an increased money supply, causing hyperinflation. (Not Zimbabwe style, but 10 - 15% within the next 12 - 18 months.) Because the economy will still not have recovered the BofE will not be able to raise rates, so we will face a very difficult time. This will lead to the same kind of situation as happened in Japan in the 90's.

    Ultimately sometimes the best course of action to solve a problem is 'just do nothing.' (Or at the very least do just enough to keep key components of industry, in this case companies with sound balance sheets, afloat.)

    Unfortunately, politicians and in particular the bunch of incompetents we have at the helm right now don't know the meaning of 'just do nothing' and will continue to mess things up even more.

  • Comment number 46.

    POST 35

    150 days??

    180 more like.

    One retailer we dealt with wanted 365.

  • Comment number 47.

    Trying to kick-start the British economy is like trying to resuscitate a cadaver, it is futile.

    Though to a large extent, Brown is right that this is a global crisis- and thus similar action elsewhere is equally pointless, he is disingenuous in trying to extricate himself from the considerable part that he played.

    The fact remains, in spite of its numerous defenders, we are seeing the collapse of the capitalist system as we know it. For sure, it has been the best economic system known to mankind, and until the modern age, less susceptible to the foibles of human behaviour than, say, communism. However, globalisation, facilitating, as it has, the mass exploitation of labour, together with the considerable advances in technology necessitating less actual labour, has brought us to this position.

    The western world sought to compensate for the reverse correlation between the gradual reduction in salaries and the higher cost of living caused by this process. Credit was the mechanism used to fill the gap, even though it had a limited shelf life. What is most remarkable is how long they managed to keep the illusion going, but like all con tricks the luck had to run out at some stage.

    We need new ideas - perhaps even new leaders - though until we accept the nature of the problem, we are likely to struggle on until the inevitable becomes clear.

  • Comment number 48.

    OK, the first draw down was to prevent the banks from imploding, stablise balance sheets ang get them lending again.

    The second drawdown is designed to transmit my tax pounds due in 2015 to people that want mortgages, to do this at 2007 levels at 2008 rates, deposits and admin charges in an environment of crashing house prices.

    Those of you tempted to get a mortgage under these conditions and fortunate enough to have the 20% deposit and the AAA+ credit rating please stand up.

  • Comment number 49.

    #12 AlphaGlen

    "It is fair to make people put 10% to 15% deposit but lend them at 0.5% above BOE rate."

    It would not be possible. The sterling LIBOR is 5.99% this morning.

    The BOE rate is the overnight rate, I think?

    I agree with your sentiment.

  • Comment number 50.


    That level of borrowing IS unsustainable in the long term, those guys are toast I'm afraid.

    On the bright side, they enjoyed themselves when times were good - Surely thats what life is all about?

    A shroud has no pockets!

  • Comment number 51.

    In addition to my previous comment - you are right Robert, it's seems many people don't understand.
    The way 'it was' didn't work, it broke!
    The was 'it is' (reduced credit, higher interest rates, more cautious lending - perm any 3 from 10) will work.
    We've been kidding ourselves for the past 10 years and too many people thought it was the norm.
    As a business I can borrow, banks are lending - yes you've got to have a sound business model and it is at a higher rate, but I'm presuming the field is level and I want banks to be risk averse.
    And I can get a mortgage at a lower level of interest and with a similar deposit to my first 25yrs ago!
    The recession is the transition period, look forward to the 'good old days' guys!

  • Comment number 52.

    The impact of the so called bail-out has been overblown by the politicans and it has been mis-sold to the public, either by design or by lack of information, probably the latter. When the 'positive' impact then fails to occur there is a backlash and a loss of credibilty and that is what is happening now, how deep or how long that process goes on is another matter. It was obvious that a great deal of mortgage and remortgage money was finding its way onto the high street in the last five years. In fact the principle of the 125% mortgage, the most extreme mortgage package made available, was to cover fitting out the property, ie high street spend included. The financial sector is to shrink, the construction sector is to shrink, side effects in other areas. The weakness of any general agreement to boost lending is that loans are made at an individual level, ie case by case. If the risk assessment is poor then it individually does not proceed, either side, borrower or lended abort. The government is not involved in the commercial process, wants to take no risk in it, and has specifically stated that as a position so it cannot complain. Lending is bound to slow in an adverse environment and realistically how many first time buyers are going to be rushing to buy with continued price slump forecast. Much of the recent mortgage lending has to have been remortgaging. Big ticket sales have been pumped up and now collapsed, unlikely to return in a hurry, another sector affected. No wonder Brown did not want to have an election a year ago with this on the horizon. Until the housing market stabises things are in trouble. At this point it is consumer house buying confidence which is the problem and making funds available will have very little impact. It is a deflationary spiral. The problem is you cannot benefit from commerce unless you take a risk and whilst the government likes to try and say it wants to benefit and play in the market it wants to take no risk so its participation is not really there. Incidentally the problem with the opposition policies so far is that they are even more risk adverse. Essentially all the risk taking is left to the borrower who is saying no thanks for the moment, so the slide will continue. The issue is loss of capital not interest rates. It is difficult to have any sympathy with HMG, it created a morbidly obese ecomony which has had an involuntary gastric bypass and now wants the patient to have a doughnut diet again. Panic due to seep into play in the Spring if thing remain moribund. The global activist policy is not going to help, will be seen as another failure to provide uplift. The UK voter is worried about their individual economic position, not that of a voter in another country

  • Comment number 53.

    Of course UK banks should not be lending on the same terms as they were in 2007, but neither should they be allowed to milk customers who're not bad credit risks.

    Next month I dare say we'll have UK base rates at 2%, and mortgage rates at c. 4.5%, but it's obviously going to be a while= a few years before the banks have made enough out of that gap to patch up their balance sheets.

    In the meantime, the government should take as many steps as necessary to support the economy, without making the mistake of supporting the insupportable, like trying to get house prices back up.

    It's a very difficult task to do enough of this stimulation to prevent serious prolonged deflation to take hold, but at the same time not to cause serious inflation.

    On sterling, a dollar fifty to the pound is pretty close to fair value, and at a euro twenty it's only about 10 percent below.

    Forget about importing inflation, it's those who are trying to export to us who'll have the problem, if we can't afford their finished goods. A year or so of a 'weak' currency would keep some of our exporters in business. It only becomes a problem for the UK if we're still in this mess after commodity and food prices have recovered- this looks a way off at the moment.

    I have read several people on RP's blog calling for a reduction in VAT to stimulate consumption. This seems rather odd, as it would simply increase demand for mainly imported luxury goods, and provide little stimulus for the UK economy. Instead, why not partially fund a swingeing cut in basic rate income tax with a commensurate hike in VAT (not including fuel)?

    This would have the effect of putting more cash in people's bank accounts to pay their mortgages etc, but discourage them from splurging it on imported luxury goods, like we Brits have tended to do in the past.

  • Comment number 54.

    RE POST 43.

    We do question it!!

    I tend to go off PISTE.

    We all know the BBC feed us what tripe Labour dish up.

    Unlike Oliver we dont WANT MORE.

  • Comment number 55.

    As a Commercial Asset Finance broker, I am increasingly worried about the holes that are now vast within my sector. The bank owned funders have either withdrawn facilities to the sector via brokers completely or are now "cherry picking" the deals they want.

    The independent funders that would pick up business on an "asset secure" basis are now valuing assets more cautiously and making lending conditions difficult. Prices across the board are up - risk and LIBOR influenced, I can live with increased prices if lending is available but I, like many brokers I am in contact with have armfuls of commercial deals that have no funding home as there is smply nothing available to them.

    Customers are aware they need to pay more but can accept this if it means they get the new equipment / machinery / refinance they are after but the price is irrelevant if the lack of availability continues. 12 months ago there was massive overlay in this sector, with many funders fighting over deals, now there are huge gaps. In the long run, the market will settle, funders will become consistent, gaps will be smaller and brokers like myself will be able to apply the skill and expertise we have to deliver service and appropriate solutions to our customers.

    This market rationalisation will take some casualties but that, for me, is life, too many have got away with too much for too long but there are good people being affected through no fault of their own.

    I have experienced my own bank withdrawing the business overdraft, after trying to double its margin over base. From what i hear, I am not unique in this position but I do believe that everyone has to play a role in "keeping the wheels moving" - bailing the banks out just to shore up their reserves and liquidity ratios is not the singular answer. Whether we like it or not, business need to continue to invest in new equipment, to buy stock etc, this requires funding and the markets need stimulus and encouragement to make this happen. Things like SFLG need to be less bureaucratic and more accessible but any change needs to happen quickly before confidence evaporates completely.

  • Comment number 56.

    #37 Alexander - you're slowly getting there. I looked again at the last lines of "Nineteen Eighty-Four" yesterday, and there are parallels with your painful journey.

    "He was back in the Ministry of Love, with everything forgiven, his soul white as snow.

    But it was all right, everything was all right, the struggle was finished. He loved Big Brother."


  • Comment number 57.

    Just Think.

    If you had a Pal who earned 18K pa

    Would you lend him 80 K to buy a house

    Would you lend him 8 k to buy a car

    Would you give him a Credit Card with a 5 k limit.

    The Banks have done this stuff for years.

    It has got to STOP.

  • Comment number 58.

    So deliberately misleading the general public about the purpose of the bank bailout was "politically necessary" because of the "public sense of outrage". Why?

    Why did the politicians find it necessary to blame the banks in the first place? What justification was there for swamping the channels of communication with the idea that it was the banks, and the banks alone, who should be held responsible for the financial crisis? Was the "public sense of outrage" constructed from a rational allocation of responsibility or from a massive campaign of disinformation designed only to establish a scapegoat?

    "But the only fact that you need to know about mortgages is that well over 50% of lending capacity in the mortgage market has been taken out by the problems at HBOS, the collapse of Bradford and Bingley and Northern Rock, and a freeze on new lending by small building societies."

    What? Are you really trying to create the impression that the problems in the mortgage market aren't directly the result of a correction of the excesses of the past? Might it not be more correctly informative to say that the 50% of lending capacity has been taken out by the mortgage lenders' difficulty in borrowing funds, because wholesale lenders are concerned about the security of the mortgage lenders, because they fear that mortgage lenders have failed to make adequate provision for the risk of falling house prices?

    And why have they failed to make provision for the risk of falling house prices? Because government policy over the last 15-20 years had left them with no commercial option except to believe that the state had determined that the house price bubble was too big to burst. If mortgage lenders didn't work with this mantra they would be out of business. Rational reservations were not strong enough to allow survival out of the mainstream. And, of course, the more enthusiastically one discarded outdated thinking, the more profit one gained from modernity, and the deeper in the mire one was when it became obvious that it was a sham.

    "Our non-financial companies' gross debt is equivalent to 120% of our annual economic output. And much of that debt is concentrated in big companies in the sectors most damaged by the shrinkage of the economy."

    So, was it really a very good idea to flood the market with cheap money, thereby making it commercially impossible for major companies to stand aside from the race to debt-fuelled growth?

  • Comment number 59.

    Good Morning!

    Your article gives the impression that smaller UK businesses are free of debt and have cash reserves; it also states that larger businesses are generally in poor financial condition and struggling under excessive gearing. This may be the case but it’s happened despite HMG’s meddling. HMG does not want small businesses in the UK. They may say that small businesses are the engine-room of the economy but, like a lot of things politicians say, it’s untrue.

    Successive governments have penalised small businesses and given larger businesses advantages with various financial instruments. Governments do this because small businesses are more expensive to tax that larger ones. HMG collected £432,000,000,000 in taxes last year; 80% of that total came from two hundred companies in the form of Income Tax and National Insurance contributions (collected by employers), excise duties and VAT.
    VAT is a tax on turn-over and whilst VAT is proportionally 17.5% whatever the business, bigger businesses make bigger bottom-line contributions. Even if a company is showing a trading loss at year-end it will still have paid VAT on turn-over.
    From HMG’s perspective, to have a small number of large compliant un-paid tax-gatherers is more economical than chasing hundreds of thousands of small traders at HMRC’s expense and as we all know, HMG departments do strive to be efficient!

    Another privilege that larger businesses have that is denied most small businesses is extended credit. It is not unusual for a supplier of materials to give a large retail chain 90 days credit whilst requiring settlement within 30 days from a small retailer – for the same products.
    So, even with cheap credit, massive turn-over and loans from shareholders in the form of rights issues, most large companies manage to make a trading loss.
    However, it’s not all bad, you’ll be reassured to know that the board of directors usually retain their pay and benefits!

  • Comment number 60.

    #11 alexandercurzon

    "The reason why the Banks both wont and cant lend,is that the assets they have lent on are so overvalued."

    Agreed. Every Credit Rating Agency in the world MISSED this fact despite a warning from Warren Buffett FIVE YEARS AGO.

    "'Weapons of financial mass destruction', was how the billionaire investor described the newfangled securities. “The range of derivatives contracts is limited only by the imagination of man or sometimes, so it seems, madmen,” Buffett said in his 2003 letter to Berkshire Hathaway Inc shareholders. "

    However, the G20 Declaration states:

    "We will exercise strong oversight over credit rating agencies, consistent with the agreed and strengthened international code of conduct. "


    "Regulators should take steps to ensure that credit rating agencies meet the highest standards of the international organization of securities regulators and that they avoid conflicts of interest, provide greater disclosure to investors and to issuers, and differentiate ratings for complex products. This will help ensure that credit rating agencies have the right incentives and appropriate oversight to enable them to perform their important role in providing unbiased information and assessments to markets.

    • The international organization of securities regulators should review credit rating agencies' adoption "

    So the CRA's will be held more responsible from now on.

  • Comment number 61.

    If the Chancellor wants to target help to mortgage payers why doesn't he reintroduce MIRAS. The banks keep their margin, the payers get relief. Everybody happy! (Er except the revenue! but afterall 'tax doesn't have to be taxing!')

  • Comment number 62.

    #36 - the reason is simple but it's not the one your cite - per se, though there is no doubt now (with fabulous hindsight) that many borrowed too much and many lent too much. That said it was all fine as long we were told the 'books balanced' which is exactly what we were told by Brown ' robust, stable' blah blah.

    The reason Britain itself is in such trouble - and has been for decades heading to this state) is it doesn't export near enough. Because it just imports everything. With one or two marginal exceptions, but the big earners have all gone.

    Hardly surprising in Labour's time that things have gotten dramatically worse - Brown actively encouraged the pound to be held at a completely unrealistic value against the USD for so long.


  • Comment number 63.

    Imagine that the interest rate cuts are coconut. We all know that under that tough furry exterior lies a milky suprise. In this case, the rates being passed on to borrowers.

    However, the problem is that only the banks themselves have the nutcracker and therefore are the only parties with access to the creamy centre of lower rates, while everyone else scratches at the hard shell, with no nutcracker at hand.

  • Comment number 64.


    DELETIONS YET????????????????????????

  • Comment number 65.

    The point is, however, that in spite of the large accumulated debt of the large corporations, they are more or less self-financing providing that their price does not fall under variable cost.

    On the other hand, the bulk of SMEs finance themselves from loans from friends and family (obviously not reported in the banking sector statistics) and from overdraft. Now overdrafts can be cut at any time, unlike coporate bonds and fixed terms credits characteristics of the large company sector.

    Thus, if the government wants to support SMEs on the credit/debit side, they need to guarantee overdrafts, which I can't see they would do.

  • Comment number 66.

    Robert -- you state above:

    "But the only fact that you need to know about mortgages is that well over 50% of lending capacity in the mortgage market has been taken out by the problems at HBOS, the collapse of Bradford & Bingley and Northern Rock, and a freeze on new lending by small building societies."

    Rather arrogant statement. There are readers out here that understand economics and banking and they don't deserve to be lectured in the manner. It is exactly why Gordon Brown is so unpopular. It is his "I know, you do" attitude that really irritates the majority of the public.

    Please keep to informative analysis and commentary -- not PR and spin provided by the Labour government.

  • Comment number 67.

  • Comment number 68.

    One of the main reasons that so many large and medium sized British companies have huge loan requirements is because they we purchased with borrowed money which was then transferred to their books by the private equity 'investors'. These 'skilled investors' noticed that is was possible to buy a company with its own debt.

    Robert Maxwell showed the way and they all followed. The Banks were only too pleased to loan (him and) them the money as the loan was secured on the assets of the company that was been purchased. Of course these private equity investors made a gigantic profit along the way, as did the bankers.

    My bet is that the companies that will have to be bailed out by the Government are these very same companies. Again we see privatised profits and socialised losses.

    Most of this problems can really be put at the door of the bankers who encourage these silly investment structures. These are the very same people who took vast bonuses for such financial chicanery! We need to find some fair mechanism to recover from these people their ill-gotten gains.

  • Comment number 69.

    I run a small business that has used the Small Firms Guarantee Scheme (a total of 3 times so I know what I'm talking about). It's not easy to apply for and the costs are high - it works best for businesses without tangible assets.

    The banks don't really like it as it has a lot of admin involved. The interest rate is 5% over LIBOR plus an insurance premium paid to DTI. You need a friendly and persistent business bank manager to put it through the internal processes.

    The shared risk (75% govt., 25% bank) means banks have to approve the lending anyway on a business plan.

    I don't think extending the SFLG will work in the short term - if a business is in trouble anyway it will not get SFLG loan funding. Also - the maximum amount available is 250K which is not really that much.

  • Comment number 70.

    Robert -- you state above:

    "But the only fact that you need to know about mortgages is that well over 50% of lending capacity in the mortgage market has been taken out by the problems at HBOS, the collapse of Bradford & Bingley and Northern Rock, and a freeze on new lending by small building societies."

    Rather arrogant statement. There are readers out here that understand economics and banking and they don't deserve to be lectured in the manner. It is exactly why Gordon Brown is so unpopular. It is his "I know, you do" attitude that really irritates the majority of the public.

    Please keep to informative analysis and commentary -- not PR and spin provided by the Labour government.

  • Comment number 71.

    Very interesting insight - which gives me mixed reactions. Having run small businesses for 20 years I have first hand experience of banks lending to SMEs.

    For the first 10 years I never had a problem negotiating good facilities. But in the last 10 years high street banks have pulled out of the SME market.

    That's why SMEs are not debt ridden & are healthier than other sectors.

    That larger companies are debt ridden confirms the disadvantageous environment for SMEs with a lack of funding.

    Going forward government should support SMEs and maybe they will be the engine of business recovery. After recovery we should tighten the screws on large business, ween them off lending and get them fitter again. In so doing there will be a more even playing fields for SMEs.

    I suspect these days High St banks don't even have the capability to lend, due to lack of knowledge on the ground (they don't have traditional lending skills any more). Maybe we need a new bank for SMEs - rather like 3i of old except first line lending rather than equity.

  • Comment number 72.


    I agree with you that the real solution is the creation/recreation/development of manufacturing. However, the changes in the institutional system in the last 30 odd years means that it could be done only through public ownership and I cannot see much appetite for that in our elite and thanks to the brainwashing (private sector is more efficient than public - there's no systematic evidence for that and also it completely ignores the question of effectiveness...).

  • Comment number 73.

    It seems to me, that this cash injection into the banking system is a lot like an irritant farmer stamping on the gas pedal of his stalled tractor.

    On the surface, it seems as if good old farmer Gordon and his flock of ministers are trying to kickstart the financial engine into picking up again, however in reality they are just wasting the precious financial fuel reserves of the nations economy, carrying too much cattle in their financial trailer.

  • Comment number 74.

    It sad but not surprising to see that the Government and its state propaganda enterprise continue to hold the general population in such contempt.

    Allow me to offer a brief translation:

    "Hello stupid people, some of you have formed the view that everything would be OK - that´s not the case and more (of your) money will be needed. You probably formed this view on the basis that we misled you. The ignorant and the true proles amongst you may conclude that we lied to you - but we are sophisticated would do no such thing, a bit of sophistry and dissembling maybe, but us lie? - never.

    Look how stupid we think you are now. Come on cheer us on for acting to prevent a meltdown of most of the banks. The banks won´t lend to anyone, but they still exist so obviously that´s a good thing.

    A few people that can´t get access to credit will probably whinge a bit, but their whinging can be drowned out by the cheering of all the people who still have access to their savings.

    For our next trick we are going to try out a spot of hyper inflation. We´re not going to tell you this upfront - but we´ll drop a few hints so when it comes to pass we can say that we´ve always been clear.

    At the end of the day we will wipe out the value of peoples savings - but the banks will still exist, and that obviously is a good thing. Only the truly ignorant would not understand. If you ask anymore questions we´ll throw you in prison - perhaps you have been over feeding your dog, or failing to sort your rubbish properly - 10 pound notes cannot be put in the same bin as 5 pound notes."

  • Comment number 75.

    Regarding "kick starting the mortgage market":

    This will only re-start as a consequence of some movement in the housing market. Currently sellers and buyers expectations are so far apart that nobody is buying, nobody is selling and therefore no mortgage required, thanks.

    The sooner sellers start to realise that they can't sell at last year's price, the sooner the market will start moving.

    I'm sure that there are many buyers out there who could get a mortgage but simply don't want one as they don't want to pay a (still) inflated price for a house.

    They need to come down another 30% on average IMHO before they are valued correctly.

    As somebody says above, there are two choices:

    1. Today's prices + more irresponsible lending
    2. MUCH lower prices that will allow prudent lending.

    That's it.

  • Comment number 76.

    I say bail out all the financial institutions in peril and keep bailing until they're safe.Then when they are they'll be in the public debt and we'll be able to live with a highly regulated and hopefully honest by implication financial system monitored by equally chastened and erstwhile complicit governments. The days of fiduciary sailing with the wind have come to an end,and the piracy on those high seas,once at Somalian levels, has abruptly waned. The worry ,of course, is the short term pain of a recession with job losses and home repossessions etc.Most people with a semblance of intellect will have insulated themselves as far as possible from disaster but many obviously haven't,and how much insulation will one need?

  • Comment number 77.

    #34 "Somalia Outlet for Distressed Stock"

    Excellent !! Love it !! Just love it !!

  • Comment number 78.

    Mr. Peston today said:

    "Give me a D"

    "Give me an A"

    "Give me a R"

    .... ad nauseam....

    Can Darling kickstart lending?

    No. Why?

    Because asset prices are in the toilet.


    Because someone (Gordon Brown) left the credit taps on and the economy was flooded with it.

    We will have to wait for the effects of excessive credit to drain out of asset prices so they find their real value before ANYONE will lend on favourable terms to ANYONE.

    You cannot inflate M4 money supply by 10-15% year which Brown did for OVER A DECADE and expect asset prices to be correctly valued.

    12m Libor is still 4.25% so we've hit the effective rock bottom of mortgage interest rate cuts.

    All further cuts will do is hit cash deposits which is exactly what shouldn't be happening. We already have negative real interest rates.

    As for banks making money, GOOD, they are recapitalising which has to happen.

    As for small businesses, they are not debt free, that is very misleading. They need to service that debt and what is the one precious commodity they need.

    A flow of cash.

    Still, it's great to know that the Chancellor pushed through tax hike over tax hike on small, medium and large businesses.

    Darling should focus not on lending but stimulating aggregate demand.

    Cut VAT, cut corporate tax and cut income tax.

    And fund it by cutting out government waste, £65bn a year spent on quangos, £20bn for an assortment of unneeded IT projects, NOT BORROWING £200bn over the next three years.

    Finally, can he force the banks to lend?

    He should know, you cannot buck the market.

    Brown and Darling like to remind Cameron so often, now they will learn it for themselves.

  • Comment number 79.

    Post 34 why would anyone buy and overpriced jumper even at 20% off today at M&S?

    Their woollen goods are at least 40 to 50% overpriced. Wait until the Saturday after Christmas and something on sale for GBP 50 to GBP 60 in the sale today will be in the sale for GBP 18 to GBP 25.

    Post 30 nice to see Mslow's pyramid of aspiration making an appearance in the blog brings back memories of economic theory lectures at University.

  • Comment number 80.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • Comment number 81.

    re post 60

    Ive been in Buffet mode since 1998.

    Although i've churned property through to 2006 when i thought it was time to quit.

  • Comment number 82.

    46 alexanderc

    We had that sort of nonsense in the early nineties, not at that level thankfully. One phone ringing with muppets wanting consultancy, on the other phone an outgoing call to an accounts department at the same outfit(s) which could not say when it, or if, was going to pay, and peddling duff cheques to buy time. Or large businesses folding shell operations to delete debt. Same people, same desk, same building, different company on paper. Effectively the end of the supply chain tries to use the earlier players to fund their survival in a downturn, as they cannot all survive, they pull down the supply chain unless the supply chain is very careful.

    Whilst small businesses may be functioning on a zero debt sheet many individuals have to allow the banks to take a personal charge on their assets to gain access to borrowing, including directors of limited companies. The zero debt balance is maintained by cashflow and it is a very naive statement to suggest this sector is safe. Sounds very much like a politically motivated information bite as a precluder to saying effectively no help for small outfits. Incidentally following the early nineties it was argued that invoices should be legally due at the end of a month as is the case on the continent, but guess what, it was sidestepped under big business pressure.

  • Comment number 83.

    Robert, this statement "On a net aggregated basis, small British businesses have zero debt." reminds me ofSchrödinger's cat paradox

    According to classical quantum theory the cat is neither alive nor dead (until someone looks in the box.) So no problems then?

  • Comment number 84.

    Sorry Robert to ask such an obvious question, but I'm still wondering..... As the government owns most of several banks anyway, why doesn't it start a "People's Bank", owned by us, the taxpayer, and kick start the economy by doing some serious lending? It couldn't cost much more than the money we're throwing at private banks in handfuls, and at least the taxpayer would benefit from the enormous profits that banks make.
    People would queue up to transfer their mortgage etc to a state-owned bank, surely?
    Or am I just being naive?

  • Comment number 85.

    I run a small business that provides services to the NHS and Department of Health. We have a substanial amount of unpaid invoices some of which are two months overdue .
    Mr Brown says that the Public Sector are to pay invoices from small businesses with 10 days.
    That is just nonsense because they don't. If payment was received that promptly small businesses would not need all the funding that is being talked about by the Government.

  • Comment number 86.

    #53 It is far easier said than done. The UK public is now addicted to the spend. spend regime. Give them any money, and they'll spend it rather than save it or reduce their mortgages.

    So you will reduce the supply of taxpayers' money without reducing the cause(s) of the problem.

    As for foreign imports, until Britain can magically produce cheap necessities of life, there will have to be cheap imports from abroad. Stopping the imports will not magically make the demand go away.

  • Comment number 87.


    The banks debt was held by others.
    The banks risked failing.
    The others would have lost, and Britain's reputation, and ability to import would have taken a sharp dive.

    Instead -

    The banks debt was taken over by HM's Government
    The banks will fail with huge debt.
    UK's taxpayers will have huge debt, and taxes to the heaven to repay the debt for the next 20 years.
    And as a result, Britain's ability to import will take a sharp dive (same as above).

    For the sake of a few month's extra survival, wasn't it a better choice to let the other's take the pain, and leave us British citizens without their debt ?

  • Comment number 88.

    So what you are saying in effect is that Brown and Darling thought it was necessary to lie over lending to businesses at 2007 levels to the public because of a sense of outrage over lending tax payers to the banks. So manipulation of the pubic is ok because it was politically necessary I find that a bit rich.

    I wish as an ex bank worker someone would explain exactly how this bail out is supposed to work. When I worked in banks you had to identify toxic debt and know which banks were exposed to toxic debt. This debt would be separated from the good part and dealt with. As I have heard nothing that suggests this has been done that is the first problem.

    So how on earth with banks forced to prop up toxic debt, lend out to businesses and morgages, at low rate and because of low interest rates not receive the investment they need ever get out of the cycle of debt, let alone lend out to all these people without a massive injection of cash.

    As far as I know you have to let the bad debt fail and recoup what you can to re-balance your books. That means let businesses fall and poor morgages go to the wall.

  • Comment number 89.

    Big business represents about 3% of all business in the UK. They employ some 50% of the working population.

    Small business accounts for 47% of all business and combined with government employment this accounts for the rest.

    Yes it is corporate UK that will cause the biggest job losses and if the tories have their way government will contribute too.

  • Comment number 90.

    As someone who has worked with small companies for a number of years I find the idea, that increasing the small firms loan guarentee system will be of any use, to be laughable.

    It is almost impossible to get a loan for many small business under the current system. There are endless restrictions on who can get access the money.

    Even if you do manage the near impossible the banks want personal guarentees from the directors for the whole amount (including the past suposedly covered by the government). What is the incentive hear

    This is yet another triumph of talk over action

  • Comment number 91.

    Retail sales robust-only 0.1% decline and still an annual increase
    Mortgage numbers approved for October increase by 7% from previous month
    Cammell Laird makes profit and recruits more staff
    Rolls Royce loosing 2000 jobs - in fact only 160 in UK
    Citibank loose 50,000 plus jobs - vast majority through sales of businesses and overseas losses

    Against all these headlines have been BBC negative comments with minimum explanation or context.

    All BBC headlines are now badged "The Downturn" with a trademark arrow. When will "The Downturn" end - when the BBC says so?

    More balanced, independant and informative information please without the constant editorials.

  • Comment number 92.


    I would be interested to know what businesses you have in mind that would be worth financing. I have nearly all my cash in Yen, which has served me well over the last year or so, but it has now nearly doubled and I suspect it is near time to repatriate it.

    My other cash is in various banks and building societies on 1 year bonds earning an average of 6.5% and underwritten against failure of the bank/BS by the FSA.

    So the question becomes where to safely invest my repatriated funds, what can be offered that represents value and safety to me as an investor?

  • Comment number 93.

    Great story on Bloomberg today entitled:

    "Swedish Banks Shun Government Plan, Riling Ministers, Companies"

    To quote from Niklas Magnusson's article:

    " Nordea AB, Svenska Handelsbanken AB and SEB AB, Sweden's biggest banks, are drawing fire from government officials for shunning the state's plan to bolster the financial system by guaranteeing their debt.

    The three banks, which dodged the worst of the global credit crisis, have yet to use the program, announced Oct. 20. Finance Minister Anders Borg, who meets the banks today, has threatened ``harsher'' terms to get them to go along. Financial Markets Minister Mats Odell has called the banks ``free-riders.''

    ...While banks say the plan may give the state too much clout over their strategy, politicians and business executives contend the program will make banks more willing to lend, thereby helping companies and stimulating economic growth.

    ``If the banks do not participate voluntarily and cannot show that they can create liquidity in the system themselves, then the government must force the banks to join the system,'' said Anna-Stina Nordmark Nilsson, the chief executive officer of Foeretagarna, which represents 70,000 Swedish entrepreneurs."

    So, Robert, who is right here? Your mates GB and Ally D who say support for banks is simply to stop them failing and is not intended to stimulate lending? Or the Swedish government whose State support program is specificly aimed at unfreezing the credit market?

    I have no idea who is right, though worth noting that Sweden had a similar localised banking crisis in the early 1990s that they successfully worked through, so at least they have experience of this type of situation. Also note that John McFall (Chair of the Treasury Select Committee) has visited both Sweden and Japan to learn lessons from their banking crises (Sweden "done good", Japan failed miserably: lessons to be learned from both). Maybe RP could suggest Ally D have a chat with JMcF and collaberate on War Communique # 976 (aka RP's next blog).

  • Comment number 94.

    There was never any rational business sense in propping up the banks, the primary driver behind the whole decision making process was political. Crash Gordon does not want to have to stand up in Parliament and annouce that all those nice voters have lost their cash because he didn't understand that an economy based on borrowing has to contract at some point in the future.

    The banks are run as a business - to make a profit. Asking them nicely to start lending to people of the basis of a political decision masquerading as a public interest decision was never going to be taken seriously by the banks.

    The only thing that will start the process going again is public opinion. Anyone notice how the banks didn't drop their lending rates after Darling had a go, but as soon as the red-top press got stuck in, down they came.

  • Comment number 95.

    As JayPee28bpr says the function of the banks is to "hoover up spare cash" and use it as a basis for lending to those that need to spend. They may still try to do the hoovering but, having burnt their fingers so badly, they are unlikely to resume lending such large multiples of the deposits in the short to medium term. The economy cannot recover fully until someone takes over their role.

    That someone has to be the government. It can hoover up the spare cash in the short term by selling bonds. But eventually the real interest rates it has to offer will become prohibitive and it will need to use taxation to get its hands on the spare cash. This will be electoral suicide since the wealthy fund the political parties and own most of the press, and will mount a tremendous campaign to protect their cash.

    Mr Cameron has seen his opportunity, and has shifted his ground to take advantage of the government's dilemma. Will the government be brave enough to press on and do what is necessary?

  • Comment number 96.

    #68 This is what is known in the trade, by its American name, as "leveraged buyout" !! It's not very different from borrow-to-buy-to-let !!

    They work on the upswing and burn up on reentry !! The American car companies were very good at that and now no one will touch them with a 500 mile barge pole !! I think, if I am not mistaken, the American owners of Man U did that too !!

  • Comment number 97.

    We hear a lot about the UK being in debt but I thought that Germany France Belgium Japan and US all greater debt as a percentage of GDP

  • Comment number 98.

    What meltdown? We've been told that that what would have happened but we dont know. Seem more like a scare tactic to bail out the banks with taxpayers money more than anything else.

    Had the governemnt NOT acted then the risky, poorly run banks would have gone bust. No bad thing.

    There would not have been the moral hazard and rent seeking that we now have where banks are buying other banks with toxic debt in order to qualify for governemtn handouts.

    In other words this is a governemnt run scam, with the taxpayers as the victim.

  • Comment number 99.

    Oh so they lied again did they? Big surprise. Who'd have thunk it?

    What's funny is that the government are so deluded they probably still think that the public actually bother to listen to anything they say any more.

    If Gordon Brown announced it was going to rain, most people would know to go out in shorts and sunglasses.

    Trust in politicians, the most devalued and debased currency of all them all.

  • Comment number 100.

    Very simple! Allow investing in residential properties through a Self Invested Personal Pension. Make a U Turn or a U Turn full 360 degrees. Ctrl Z and a Ctrl Z.


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