There is little actual surprise that the ConDem government’s soft-option initiative supposedly aimed at forcing banks to help commercial investment has failed to deliver on its first milestone. Project Merlin was supposed to see lending of £76bn to SMEs in 2011 - equating to £19bn a quarter. Bank of England figures show that in the first three months of 2011, the top five UK banks loaned £16.8bn – a 2.2bn shortfall.
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| Is Merlin Mickey Mouse? |
Many small firms continue to report that a bank credit remains hard to obtain, with viable companies under threat because they cannot get loans.
A recent survey by the Federation of Small Businesses found that only 16% of their members had been encouraged to approach their bank for credit and of those 44% had been refused.
The backtracked terms of the 'magical' deal brokered between desperate ministers and a reluctant banking sector have been heavily criticised. Specific venom has come from Lib Dem peer Lord Oakeshott who complained that treasury officials “couldn't negotiate their way out of a paper bag” and that the banks had put up two fingers to the coalition government over the scale of bonuses. He subsequently resigned as their treasury spokesman.
Business Secretary Vince Cable agreed that there is a “serious problem with lending to good, small companies.”
He stated, "We looked to the Merlin agreement to rectify the problem and... we want to see significant improvement over the next few months. We will monitor the banks' performance extremely closely and if they fail to meet the commitments they have agreed we will examine options for further action”.
What's he going to do - declare war?
2 Comments:
What I find entertaining is the reflexive way ConDems just blame Brown's Labour administration for the deficit- as if that is all we plebs need to know. Cable has been shown up as a blustering twat who talked a good fight in opposition but is completely out of his depth in government.
The banks are not going to lend to businesses that in their opinion are not a 100% safe bet. We've just been through a maasive banking crisis caused in part by doing exactly that and we called the banks stupid for doing it.
A lot of these businesses that are being turned away are the 'small' part of SME. They are the self-employed taxi drivers, the corner shop, tenanted pubs, 'intellectual' businesses - ie an architect with few physical assets as collateral. The problem is they are already borrowed up to the hilt and they need the money not to expand or invest but to pay outstanding VAT bills etc. They have few - if any assets that are not already mortgaged to the hilt and in a lot of cases are unwilling to use their house or means of work as collateral - ie they want the loan unsecured.
If businesses are being turned away then perhaps the government (ie us the taxpayer) should underwrite the loans by 100% - if these are viable businesses then this will be a safe bet with tax payers money. Or perhaps use Northern Wreck as a loan vehicle again underwritten by the taxpayer.
You'll notice that both Labour before them and the Tories now had the ability to use Northern Wreck to do just this but shied away from it because they know the failure rate will be high and as a result the taxpayer (voter) will turn on them. The banks are not going to take high risks anymore. That is not going to happen.
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