Osborne: We will not tolerate banks piling pressure on small firms
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Chancellor George Osborne has warned high street banks they need to increase lending to small businesses.
According to the BBC, Osborne said the Government “would not tolerate banks piling the pressure” onto small firms, adding that it was their “obligation” to lift lending.
The news come before HSBC, Lloyds Banking Group, Barclays and Royal Bank of Scotland announce their results this week. All are expected to reveal substantial profits.
Meanwhile, Shadow Energy Secretary Ed Miliband and Shadow Foreign Secretary David Miliband, the front runners for the Labour leadership, have called separately for the new banking levy to be increased, claiming the £2bn tax is too small.
According to the Financial Times, David Miliband told a party meeting recently that the tax was “piddling” and “incredibly small”.
In an FT interview, published this morning, Ed Miliband said: “The Government engaged in sleight of hand with the banking tax because they took with one hand and then gave with another via cuts in corporation tax.”
The younger brother added that Labour must champion small business, saying: “We need to be the party of small business and of the self-employed, even though it is not a natural constituency for Labour. They face huge vested interests.”
But newly appointed Treasury select committee chairman Conservative Andrew Tyrie has told ministers to ease up on the banks over company lending, according to today’s Times.
The paper quotes Tyrie as saying: “I am very concerned that banks are not lending enough to SMEs and it is not clear to me how Britain can have a prolonged period of trend growth without the normalisation of banks’ activity.
“Having said that the Government is not going to succeed at getting more lending just be shouting at banks or threatening them.”
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Readers' comments (6)
Rose Lewis | 2 Aug 2010 8:37 am
Banks need more confidence to lend, sure, but also the businesses need to be in better shape when they go to a bank for money.
If you ask a bank to lend a business just working capital to see it through ‘a difficult time’ then the bank is not going to lend especially if the business owners are not putting anything at risk themselves – i.e. the dreaded security issue.
However, if the business went to the bank with a proper well-thought-through plan with investment requirement set out clearly and the impact it is likely to have on the business along with what they are prepared to put up as risk – then the banks are much more likely to lend. The question the government should be tackling is how we equip are SME’s with the necessary skills to be able to go to the banks with an attractive investment proposition but all we have heard from the current government is cuts to SME business support - we have yet to hear what they are going to do to ensure we encourage an enterprise economy where entrepreneurs are supported in launching and growing the businesses of the future.
Rose Lewis Pembridge Partners LLP
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Richard Ross | 2 Aug 2010 9:39 am
I had the first meeting in a couple of years with my bank manager recently. We have an overdraft facility equivalent to around three weeks turnover, for which we pay 8% - itself an increase from the previous 3% over base. I was surprised to be pressured to convert it to a two year loan - and shocked to be told the interest rate would be 21%. ‘Thanks for the offer – I think I stick with the overdraft’ ‘ah, no – sorry, if you don’t take the loan we’ll reduce your overdraft to 25% of its current level’!!!!
I should also perhaps say that we are profitable and our profits and turnover have risen by 20% for each of the last three years. I am fortunate in that, having experienced tough times in previous recessions I have always maintained a high degree of flexibility (very occasionally you learn from your mistakes!) and was able to simply pay off all borrowing. I suspect many small businesses would not be in the same position and I also wonder if a term loan is treated as new lending even if it simply replaces existing borrowing?
What a bunch of useless bankers
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Anonymous | 2 Aug 2010 10:17 am
But WE lent to the banks when they were going through 'a difficult time' and did not have a proper well-thought-through plan.
Not sure what security they offered up either!!
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John Whipple | 2 Aug 2010 6:04 pm
Rose - I am sorry to say that the experience of Richard is common the Banks have decided that the easy way to make extra money is to force overdraft conversion to loans for a fee a higher interest rate and to sell interest rate cap or and interest rate swaps.
Many smaller business have no choice but to pay out even more pushing the banks margins out hugely.
As to lending for expansion very very little is happening.
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Stephen | 3 Aug 2010 10:59 am
And what is so called "tough talking Osborne" gong to do about it. NOTHING. Why, because although the taxpayer i.e. us, owns much of the banking sector he is in their pockets in exactly the same way as the previous mob. The only difference is instead of the corrupt looney left dictatorship we now have a CON dem dictatorship.
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Julian Stevens | 10 Aug 2010 5:25 pm
Quite ~ what are you going to do about it George if the banks continue to ignore you? There's not much you can do short of sending in civil servants to dicate lending practices to the banks ~ and you can't even do that because the banks are (mostly) private sector enterprises and civil servants aren't competent to undertake such tasks anyway.
You can't fine the banks for not playing the game the way you want them to because they'd simply sue you. And you can't offer Treasury backing for loans that may go wrong because the national exchequer's already well into the red.
The only thing I can think of is perhaps to underwrite a carefully selected proportion of whatever loans they make and maybe offer them some corporate tax incentives for higher lending.
But just bleating about it isn't going to make them change their present behaviour ~ is it?
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