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British Business Bank

Volume 587: debated on Monday 3 November 2014

On 26 June 2014, I made a written statement to the House providing an update on progress in setting up a new British business bank to support the provision of finance to small and medium-sized businesses in the UK.

I am pleased that I am now able to tell the House that the bank began full operations as an independent entity on 1 November 2014.

The commencement of operations by the bank has been contingent on receiving state aid approval from the European Commission. On 15 October 2014 the European Commission gave its approval, relating to the bank’s funding, remit and operating model.

In advance of receiving state aid approval, the business bank team has achieved significant progress in supporting lending to small businesses while operating out of the Department. Eight hundred and twenty nine million pounds of new lending and investment to small UK firms was generated through the business bank programmes in the 12 months to June 2014, taking the total number of businesses benefiting from the bank’s programmes to over 35,000.

Given the breadth of the bank’s activities, the bank will operate through the following three subsidiaries, as set out in the terms of the state aid approval:

a ‘mandated’ subsidiary––British Business Finance Ltd––which will be able to offer funding and guarantees to banks and other financial intermediaries so incentivising them to offer more finance to small firms;

a ‘commercial’ subsidiary––British Business Bank Investments Ltd––whose remit is unfettered by state aid constraints, though in line with the state aid approval for the bank it must operate on fully commercial terms, including its funding, operations and investment activity; and

a ‘service’ subsidiary––British Business Financial Services Ltd––which will provide services to Government including managing specific programmes which remain on Government’s balance sheet.

The subsidiaries will operate under the British business bank brand, with the exception of the commercial subsidiary which will operate under the British business bank investments brand.

My Department has entered into a keep-well agreement with British Business Finance Ltd under which my Department will, subject to certain conditions being met, agree to provide funding to British Business Finance Ltd in circumstances where British Business Finance Ltd would not otherwise be able to meet its payment obligations.

This model will permit the bank, through the mandated arm, to make commercial or aided investments to firms eligible under the EU general block exemption regulations, as well as loans or investments to businesses within the specified de minimis limits. The bank will also gain significant extra flexibility through the commercial and service arms.

My Department has also been working to ensure that the company would be ready to begin operations soon after the receipt of state aid approval. On 30 October 2014, the board of British Business Bank plc resolved that the company would be ready to begin full operations as an independent entity on 1 November, having concluded that the necessary systems, processes and personnel would be in place. The assets which are transferring to the bank transferred on 1 November.

The Government will provide funding to the bank under section 228 of the Banking Act 2009.