By Duncan Brodie
Monday, March 4, 2013
THE Government and the Bank of England need to do more to promote competition in bank lending, a senior regional figure within the Federation of Small Businesses said today.
The comments by Peter Martin, the FSB’s regional treasurer for East Anglia, came after new figures showing that the Government’s Funding for Lending Scheme (FLS) has so far failed to achieve an increase in overall lending by banks and building societies.
The Bank of England said net lending in the quarter to December 31 fell by £2.4billion on the previous quarter, despite participants in its FLS programme drawing down another £9.5bn over the period. The bank said it expected credit conditions to improve over the course of the year and pointed out that net lending increased £3.1bn in January.
However, Mr Martin said: “The figures continue to reflect the difficulty that small firms experience in getting finance.
“It is clear that Funding for Lending is benefitting the mortgage market more than the small business sector, so we would encourage the Government and the Bank of England to see how new and challenger banks can use the scheme better.
“Many new banks coming into the market will only lend to small firms so they can use this funding to attract new customers and become larger.
“The fact that lending has fallen shows just how important it is for the Government to use the Business Bank and the Financial Conduct Authority to create more competition in the sector, through non-bank finance routes as well as traditional banks,” he added.
Yesterday’s figure show that, during the fourth quarter, a total of 11 banks and building societies brought the total amount drawn from the FLS to £13.8bn. Barclays has tapped the scheme for £6bn since June and lent almost all of it. However, Santander, RBS and Lloyds all saw lending fall despite drawing FLS money.
Seven lenders – Aldermore, Coventry Building Society, Cumberland Building Society, Julian Hodge Bank, Metro Bank, Monmouthshire Building Society and Virgin Money – drew funds from the scheme for the first time in the fourth quarter and all increased lending in the period.
Prime Minister David Cameron’s official spokesman said that the Government and the Bank had always made clear that it would take some time before the impact of the Funding for Lending scheme was felt, and that it was not expected as early as the fourth quarter of 2012.
“I think the Bank of England at the time of the launch of the policy was clear that it would take some time for the impact of the policy to be fully felt,” the spokesman told a daily Westminster news briefing.
“The most recent figures for lending in the economy, for January - the first month of Q1 2013 (the first quarter of 2013) - show that lending to the economy increased in January.
“I think we are also seeing the impact of the Funding for Lending scheme through lower borrowing costs. I think we are seeing evidence of the policy having a clear impact.”
But Shadow chancellor Ed Balls said: “Businesses are losing patience with this Government. After nearly three years of failure, the Chancellor must explain what action he will take to finally boost net lending to small and medium-sized firms, which is vital if we are to get our economy moving.
“And we need broader action to kick-start our economy and strengthen it for the long-term. Labour and business groups are calling for infrastructure investment to be brought forward, a British Investment Bank and a national insurance holiday for small firms taking on extra staff. It’s time this downgraded Chancellor finally listened and acted.”
Business Secretary Vince Cable said the figures were “disappointing” and admitted the scheme may need to be “adapted”.
He told BBC Radio 4’s World at One programme: “The Funding for Lending scheme only started last summer.
“It is working in some areas with some of the new banks, for example I talked recently to Aldermore, which is one of the new competitor business banks, it is making good use of it.
“But it isn’t yet countering the very negative trend, the very conservative lending patterns that the banks in general are promoting in relation to business.
“It (the scheme) may need to be adapted and I’m going to see the deputy governor of the Bank of England, who operates the scheme from the Bank of England, to discuss how we can improve it.”