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Bank Lending (Businesses)

Volume 518: debated on Tuesday 16 November 2010

10. What recent steps he has taken to increase levels of bank lending to small and medium-sized businesses. (23973)

The Government have increased and extended the enterprise finance guarantee to support lending to small businesses. We have increased our share of the enterprise capital fund to enable extra investment in start up for small businesses, and we have encouraged the new business growth fund set up by the banks. But more needs to be done to ensure that the banks are lending to small and medium-sized businesses. It is a complex issue with no single answer, but it is crucial to our recovery, and my hon. Friend has my assurance that this is a key priority.

I thank the Chancellor for that answer. Lionverge, a Northampton company employing 80 people, had an overdraft with Barclays of £70,000, backed by security of £130,000. A new manager was recently appointed, and in August he wrote to the company doubling the security, and cutting the overdraft by £20,000 with further cuts of £10,000 a month to end the facility. The company had not defaulted, no warning was given, and no other options were offered. What can the Chancellor do to stop such unacceptable bank practices that undermine the Government’s growth strategy?

I recently met the leading chief executives of our largest banks, and they have come forward with proposals to improve the way they treat their customers, and to increase their lending to small businesses. We welcome the fund that they have set up. As I said, there is still more to do. The issue is complex, and one complexity has been the uncertainty of international regulation and how much capital and liquidity banks need. At the G20 that took place recently in South Korea, there was at last agreement on the new international rules, and a very lengthy transition period to them. I hope that British banks will take heed of that, and as a result, be able to increase their lending to small businesses.

Why is the Chancellor so afraid to make the banks play their full part in picking up the mess that they created? He has refused to do anything about the excessive bonuses, and we read in the paper that he is about to U-turn on the publication of remuneration. We also read that he is climbing down on the bank levy and, in his answer to the hon. Member for Northampton South (Mr Binley), he is now suggesting that it is too complex to make the banks lend to small businesses. The Government are not afraid to hit children and families with cutbacks, but if we are all in this together, why is the Chancellor letting the banks off the hook?

One does wonder where the hon. Gentleman has been for the past couple of years. We are picking up the pieces of the biggest banking crash of our lifetimes, caused by the poor regulation of the previous Government. Since coming to office, we have announced major changes in regulation, putting the Bank of England in charge—which we still do not know whether the Opposition support—and a permanent bank levy, which was opposed by every single Labour Member during the general election. We are determined to sort out the problems left to us by the previous Government.

The enterprise finance guarantee scheme was specifically designed to help small businesses to get bank finance. It has not worked, and many companies feel that it has not assisted them. What is my right hon. Friend doing to ensure that the scheme plays a full part in helping companies to get finance?

The first thing that I would say to my hon. Friend is that, of all the schemes that we inherited, this was the one that we thought had the most chance of improvement and was worth investing in. The other schemes had almost no take-up, but this one did. We were able to provide some additional money for it in the Budget, in the form of £200 million to support additional lending. We are also introducing changes to the way the schemes work, so that there will be a limit of 20 business days that all major lenders taking part in the enterprise finance guarantee scheme will have to comply with, so that people are not left on the hook waiting for an answer.