In the House of Commons yesterday, Jo Swinson MP slammed the Government for failing to get banks lending to local small businesses at reasonable rates.
In questions to the Scottish Minister, Jo Swinson said that many small businesses in East Dunbartonshire have been unable to get loans from banks due to excessively high interest rates and unreasonable terms and conditions. Although the government has said that one of the main reasons why it has bought large shares in the banking sector is so that it can do “whatever it takes” to get banks lending to small businesses, it is refusing to intervene to get part-nationalised banks lending again. Jo slammed the government for failing to live up to its promises, asking when it will do “whatever it takes” to support small businesses.
Despite the government’s continued statements that banks are giving out loans, the Bank of England Chief warned last month that the recession is likely to drag on longer because banks continue to be risk-averse. Lack of available credit is having a negative effect on the job market, with unemployment in East Dunbartonshire rising to 1082 claimants in May.
Commenting, Jo Swinson said:
“I have been contacted by many local people who are running viable small businesses but are unable to get loans because the banks are charging outrageously high interest rates. Taxpayers own shares in several of the UK’s largest banks, and yet they are the only shareholders who are not allowed to influence business decisions. The government justified spending public money on bailing out the banks by saying it would use its leverage to help small businesses, and now it is refusing to do so. If businesses cannot get access to credit, more people will lose their jobs, and the government will have to explain to them people why it has broken yet another promise.”
The text of Jo Swinson’s oral question to the Secretary of State for Scotland appears below:
Jo Swinson (East Dunbartonshire) (LD): What recent discussions he has had with the Chancellor of the Exchequer on measures to encourage banks to lend to small businesses in Scotland.
The Parliamentary Under-Secretary of State for Scotland (Ann McKechin): Mr. Speaker, since I came to the House I have much appreciated the friendship and support that you have shown, as one of my neighbouring MPs. I thank you for that.
My right hon. Friend the Secretary of State has regular discussions with the Chancellor on a range of issues. Since the start of the year, the Government have introduced a range of measures to help increase liquidity and ease credit conditions for business.
Jo Swinson: Like other hon. Members, I have huge amounts of correspondence from constituents with viable small businesses who are desperate to get credit but are being offered loans only on ridiculous terms-anything between 7 and 23 per cent. above base rate. On 15 October, the Leader of the House said:
“One of the main reasons why we have been…buying shares in the banks is to ensure that they start lending again to small businesses at reasonable rates. We will do whatever it takes to back up our small business sector.”-[Official Report, 15 October 2008; Vol. 480, c. 790.]
When will the Government start doing “whatever it takes”?
Ann McKechin: The hon. Lady should look at the facts. The Government created the enterprise finance guarantee specifically for companies that cannot access commercial lending. To date, more than 187 firms in Scotland have benefited from loans of more than £25 million. In addition, the business support payment scheme from the tax office has helped 9,000 Scottish firms defer £167 million. I have been advised by the Royal Bank of Scotland that in the past year its lending to small and medium-sized enterprises in Scotland has increased by close to £100 million, and that it anticipates lending an additional £250 million to the Scottish SME sector this year alone.
Jo Swinson’s written question to the Chancellor of the Exchequer on 13th May 2009 appears below:
Jo Swinson: To ask the Chancellor of the Exchequer (1) what steps the Government has taken to encourage banks recapitalised from the public purse to pass on recent reductions in the Bank of England base rate when lending to small and medium-sized businesses;
(2) what recent steps the Government has taken to ensure that the terms and conditions placed on loans to small and medium-sized businesses by banks recapitalised from the public purse are reasonable.
Ian Pearson: Decisions concerning products and pricing remain commercial decisions for firms. Where there is public sector investment in financial institutions these stakes are being managed on an arm’s length and independent basis.
The Government are taking action to ensure competitively priced loans continue to be available. On 19 January, the Government announced measures to reinforce the stability of the financial system, increase confidence and capacity to lend, and support the recovery of the economy. These measures build on those announced on 8 October 2008. The Government have agreed lending commitments with Lloyds and RBS that will see Lloyds lend an additional £14 billion, and RBS an additional £25 billion, on commercial terms and subject to market demand, over the 12 months from March 2009. The commitments are specific, quantified and legally binding. HM Treasury will report annually to Parliament on the delivery of these agreements.