Banks still not doing enough to support business, say MPs

Bank Street Image copyright Reuters
Image caption The MPs said the government needed to do more to encourage banks to lend to businesses

Small and medium-sized UK businesses are still struggling to access enough funding despite efforts by the government to boost lending, the Public Accounts Committee has said.

The MPs said net lending by banks using the Funding for Lending scheme had fallen by £2.3bn since June 2012.

It added there was little understanding of where support was most needed.

But the government said the report did not reflect reality and that credit conditions were improving.

Funding for Lending is the scheme launched jointly by the Bank of England and the Treasury to boost lending to the real economy.

Under the scheme, banks and building societies were allowed to borrow money cheaply from the Bank of England, as long as they then loaned that money to individuals or businesses.

The scheme was recently modified to exclude individuals, as the Bank believed mortgage lending had picked up sufficiently and no longer needed special support.

The latest Bank of England figures show that all lending to businesses fell by £4.3bn between September and November 2013.

'Best value'

"Small and medium-sized enterprises have a vital role to play in driving the UK's economic recovery... but many still struggle to access the finance they need," said Margaret Hodge, chair of the committee.

"[Government] departments manage their various schemes not as a coherent programme but simply as a series of ad hoc initiatives."

She said the Department for Business and the Treasury could not demonstrate that they were "achieving best value for taxpayers' money."

The report also criticised the government's Enterprise Finance Guarantee scheme, which looks to help businesses that have been turned down for bank loans.

The number and value of loans provided by the scheme had fallen in each year between 2010 and 2013, the report said.

The committee said that the two government departments were unable to show that the schemes launched to boost lending had addressed the market failures they were designed to correct.

However, the government challenged the report's findings, saying they did "not reflect the reality, which is that credit conditions for small and medium enterprises are improving, new lending is being provided and small businesses are being offered cheaper loans rates".

A spokesman for the Bank of England also told the BBC that many businesses now prefer to raise money by themselves, rather than taking a loan from a bank.

He also said that the latest figures on business lending showed an improving situation.

While business lending in 2012 fell by £1.5bn a month on average, in 2013 it fell by £1.1bn a month.

'Poor servant'

The committee of MPs said the new British Business Bank, which is launching this year and will have £1bn of capital at its disposal, should help drive more lending to businesses.

The British Chamber of Commerce said it agreed with much in the report, but called on the government to go further in its plans for the Business Bank, so that "it is customer-facing, better capitalised from the outset, and has the ability to lend directly to businesses".

The committee's report comes a week after the Labour party called for greater competition in banking and for the break up of some the UK's largest banks.

Party leader Ed Miliband said the City had been "an incredibly poor servant of the real economy", adding that banks should be doing more to help businesses grow.

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