UK Politics

Regional banks needed to restore trust and boost lending - Miliband

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Media captionEd Miliband says regional banks will serve small businesses and entrepreneurs

Labour would seek to establish a network of regional banks if elected, to help small business get access to finance, Ed Miliband has said.

The opposition leader argued the idea, based on a German model of community banks, could reinvigorate and rebuild trust in the banking sector.

He told a business conference that lending is continuing to fall while the "bonus as usual culture" prevails.

The government say Labour presided over the biggest bust in banking history.

Mr Miliband put forward the idea in a speech at the annual conference of the British Chambers of Commerce, at which Foreign Secretary William Hague and Business Secretary Vince Cable are also speaking.

Less than a week before the Budget, Mr Miliband reiterated his call for far-reaching reform of the banking system, arguing that "tinkering" won't do.

'Regional mission'

The opposition have already set out plans if they return to power to create a British Investment Bank, focused on providing long-term funding for small and medium sized business, particularly start-ups.

But Mr Miliband has gone further, calling for a network of lenders in every major region of England based on the Sparkassen model in Germany. The banks would have a civic duty to promote local growth and only lend to firms operating in their area.

Such institutions, Mr Miliband said, would have "a mission to serve that region and that region alone, not banks that like to say no but banks that know your region and your business, not banks that you mistrust but banks you can come to trust".

Labour argue community banks elsewhere geared around local lending proved much more resilient during the financial crisis because they built up less debt and followed less high-risk strategies. Their development in the UK could help address regional disparities in lending and refusal rates.

"We need banks that serve our businesses, not businesses that serve our banks," Mr Miliband said, adding that the government has failed to encourage banks to lend more while the City "carries on with a bonus as usual culture, even for those that fail".

According to the Bank of England, net lending by banks participating in the government's Funding for Lending Scheme - which seeks to reduce funding costs for banks and building societies - fell by £2.4bn in the final three months of 2012.

The Bank of England has said there are signs of an improvement in credit conditions although it will take time - but many banks say the problem is that healthy businesses do not want to borrow because of a lack of consumer demand in the economy.

'Structural fault'

Mr Miliband also called for the development of enterprise hubs to facilitate business co-operation as well as increased investment in infrastructure and an immediate cut in VAT to stimulate demand and give a short in the arm to struggling businesses.

"We need to build new institutions out of the rubble of the old with radical new approaches to banking, skills, the British firm and infrastructure, underpinned by confidence and clarity about our place in the world."

The British Chambers of Commerce has said there is a longstanding "structural fault" in business lending. Its director general John Longworth has called for a "new model economy" based on more spending on infrastructure and a rethink on access to finance.

The government has said the UK's biggest banks will be broken up if they fail to follow new rules to ring-fence risky investment operations from High Street outlets currently being considered by Parliament.

Ministers have also unveiled measures to increase competition in the banking sector, including enabling customers to switch current accounts within a week, but critics say this does not go far enough.

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