Cable threatens banks over lending
Published 08/06/2011 | 10:32
Business Secretary Vince Cable has told MPs the Government is prepared to increase taxation on UK banks if they fail to back small businesses.
Mr Cable was asked to address fears that the UK's top five banks are failing to do enough to meet lending targets as set out under the Project Merlin agreement.
Addressing the Business, Innovation and Skills (BIS) Committee, Mr Cable said: "The Chancellor and Prime Minster have made it clear that if we don't get results, they have said we should take further action with tax on banks."
Mr Cable acknowledged there was a "serious problem" with lending to small and medium-sized enterprises (SMEs) but said there was a "mixture of factors" behind this, including low demand for new lending.
The Project Merlin agreement, unveiled in February, followed protracted talks between the top five banks and the Treasury over key issues such as bonuses and lending.
Under the Project Merlin agreement, the banks said they would increase lending to SMEs to £76 billion this year, which equates to £19 billion in the first quarter.
Figures released by the Bank of England showed Barclays, Royal Bank of Scotland, Lloyds Banking Group, HSBC and Santander UK lent £16.8 billion to SMEs in the first three months of the year. However, the figures showed the banks were on course to meet overall business lending targets of £190 billion this year, equal to £47.5 billion for the quarter, as they lent £47.3 billion in the period.
Mr Cable told the BIS Committee: "The banks argue there's weakness in demand. That is highly relevant. In addition to that, we are, through the regulator, requiring them to hold more capital, which in turn requires them to be more cautious with their lending."
Mr Cable said banks had gradually moved away from "relationship banking" and that the Government was "not seeing enough evidence" that bankers' bonuses were tied to SME lending as pledged.
But the Business Secretary insisted the Government was "pressing them for information", adding: "If banks have not made a significant effort to achieve the targets they agreed with us, it will then be a question of the Government saying this has not worked and we are absolved from any commitment on our part in terms of restraint on taxation. We hope that situation does not arise."