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Banks: Lending

Volume 752: debated on Wednesday 5 February 2014


Asked by

To ask Her Majesty’s Government what assessment they have made of the success of the steps they have taken to encourage banks to lend to small and medium-sized enterprises.

My Lords, the Funding for Lending scheme is incentivising banks to increase lending to businesses. In addition, the Enterprise Finance Guarantee scheme has underpinned £1.4 billion of lending since 2010, and the Government are supporting the development of alternatives to bank finance. In the last quarter of 2013, the banks lent an average of £4 billion a month; in the same period in 2012, the average was £3.1 billion. That trend is positive and encouraging.

My Lords, I of course welcome the establishment of the business bank and the additional funds earmarked for it. However, as the Minister knows, the vast bulk of business lending in the UK comes from commercial banks. With a recovery under way at last, does the Minister not fear that the banks could take the easy way out and divert funds needed for SMEs into a heating and unproductive housing market, thus ensuring that the real wealth creators of this country are unable to help our economy grow?

My Lords, we launched the Funding for Lending scheme to kick-start the housing market and to help our SMEs. Now that the housing market is picking up, the Government accept that the Funding for Lending scheme no longer needs to support lending to households. That is why the scheme’s fire-power has now been refocused to underpin the supply of credit to small businesses, where it is most needed.

My Lords, three months ago the Royal Bank of Scotland Group, which is owned by the Government, publicly admitted that it has been treating its SME customers abominably and undertook to change its ways. Can my noble friend tell the House what practical steps have been taken and what the Government are doing to monitor this situation, for which they have a clear and direct responsibility?

My Lords, we are encouraging the Royal Bank of Scotland to lend more money to SMEs. In fact, the bank has lent £58 billion to small businesses. On Thursday last week, the Royal Bank, together with four other banks, launched a campaign to say that they were open to lending money to small businesses and willing to consider applications from SMEs. Therefore, the Royal Bank of Scotland is conducting a proactive campaign to make sure that it lends to small businesses.

My Lords, given that the Bank of England has tabulated another fall in lending to small businesses in the past couple of months, that the CBI has called for wider ways of funding small businesses and that the WEF has asked for more competition from the banks in lending to small businesses, why does the Minister try to paint so rosy a picture?

My Lords, the Minister is not painting a rosy picture. Let me take the last point made by the noble Lord, relating to competition. We will soon spin out a TSB from Lloyds Bank; we will spin out Williams & Glyn’s Bank from the Royal Bank of Scotland; we have the British Business Bank in place and the large number of private banks that have come into the market: the Metro Bank, the Shawbrook and the Cambridge & Counties Bank. There are therefore several banks coming into the market. Another thing that the regulators have done is that they looked at the regulations to make it easier for new companies to apply for banking licences. We have 20 applications being considered at the moment, so given time, we will have a number of banks in real competition.

My Lords, if the recovery is going so well, why are businesses not investing on a more significant scale, but rather holding very considerable amounts of uninvested resources on their balance sheets?

My Lords, you cannot force a company in the free market to make an investment, but you can create the conditions for such things to happen. I am pleased to say that the conditions in this country are now pretty good for businesses to invest money.

My Lords, exporting is very important for this country, but can be daunting and difficult for small businesses. Will the Minister ensure, through UKTI and otherwise, that it is made easier for small businesses to actually get funding for exporting, which is an essential need for the country?

My Lords, when I first came to this House, I set up an ad hoc committee to see what we could do to help SMEs to export more and have access to finance. The report was published in this very House, and we now have a large number of schemes, with UKTI working to help our SMEs to export more and to make funds available for exporting.

My Lords, the National Audit Office recently reported on borrowing to SMEs. It said:

“the flow of new bank term lending to SMEs fell by 23 per cent between 2009 and 2012 … the ‘funding’ gap (the difference between the funding required by SMEs and the funding available) … may reach £22 billion by 2017. … There is no formal research programme joining BIS, HM Treasury and other departments that have an interest in SMEs. As a result, emerging insights are not as joined-up as they should be”.

Will the Minister tell the House when he last met with Treasury officials and when he intends to meet them to talk about SMEs in the future?

My Lords, gross bank lending has gone up for the past 12 months, although net lending has fallen in three out of the past 10 months. Overall lending is a lot more than it was in 2012. I am pleased to say that, although net lending has dropped, there are other sources of finance available to SMEs and businesses from which they can borrow money. The recent responses to the Bank of England credit conditions survey reported that the overall availability of credit to the corporate sector increased significantly in the final quarter of 2013. I normally stick to my own department, and I have not had any meetings with the Treasury.

My Lords, will my noble friend explain why the capital requirements for banks that are lending to small businesses require them to maintain a considerable amount of capital for the loans they provide, whereas, if they buy Greek bonds, they are not required to provide any capital at all? Is it therefore any wonder that there is a distortion towards buying bonds from sovereign bodies rather than lending to small business? Should we not look at the regulation?

My Lords, the regulations are being reviewed, but I agree with the noble Lord. A large number of medium-sized businesses are now switching from bank borrowing to issuing bonds.