It’s a central plank of the Government’s policy to stimulate economic
growth — supply cheap money to banks and building societies to
encourage them to lend. It has come in many forms — from lower interest
rates and quantitative easing to schemes like Funding for Lending (FLS),
Project Merlin and the National Loan Guarantee scheme.
So how is it going?
Not great, it has to be said. Recent data from the Bank of England
reveals that lending to businesses and individuals in the final quarter
of 2012 dropped by £2.4bn. Lloyds Banking Group reduced its lending by
more than £3bn in that time, more than any other bank.
Dr Vince Cable called the results "deeply disappointing” and said
that the scheme may need to be “adapted”. Critics argue that banks are
simply taking the cheap money and using it for their own needs. But the
aim of this scheme and others like it was not to prop up the banks — it
was supposed to kick start the economy.
Meanwhile, apologists for the Funding for Lending scheme say things
would have been worse without it and they urge us all to give them more
time. But is time running out for small firms that cannot get the
funding they need?
The British Bankers Association, representing the major banks, says
many businesses are choosing not to borrow. A spokesperson actually
said: "It is more of a demand issue than a supply issue.”
Try telling that to Mike Benson and thousands like him. He runs a
business in Worcestershire supplying parts for air compressors and
exporting to countries such as the US and Chile. The business was
described in a BBC article this week as “quietly profitable for the past 15 years” — like many UK small firms that are just getting on with the job.
Mike wanted to borrow £10,000 to put towards the purchase of a new
van. Knocked back by the Bank of Scotland, Benson wrote to Sir Mervyn
King to tell him of his woes and got a “delightful” letter back that was
full of sympathy.
The Governor of the Bank of England did have one piece of advice for Mike — try one of the UK’s new banks
such as the Swedish firm, Handlelsbank. It echoes Vince Cable’s
comments this week on BBC Radio 4's World at One programme when he said
the Funding for Lending scheme is working “with some of the new banks”
such as Aldermore.
But the majority of small firms bank with the big names and, according to the Federation of Small Businesses (FSB), a staggering 41% of small firms were refused finance by the high street banks in the second quarter of 2012.
Something’s got to give. We’ve been watching the Budget with interest. Over to you George.
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