Banks loaned SMEs less cash in 2011
Lending by Britain's top five banks shrank every quarter last year - an embarrassing blow to the Chancellor's Project Merlin agreement.
After taking loan repayments into account, Lloyds Banking Group, Royal Bank of Scotland, Santander, Barclays and HSBC loaned out less money in 2011, including a 3% drop in the final quarter, the Bank of England said, .
The figures show that the five banks missed Merlin's gross lending targets for small businesses in 2011 by more than £1 billion but beat the target for all businesses by £24.9 billion.
Royal Bank of Scotland - 83% owned by the taxpayer - is the culprit for the shortfall in small business lending. The other four banks beat their targets.
Under the Project Merlin agreement, the five banks said they would increase lending available to small and medium enterprises (SMEs) to £76 billion and increase lending available to all businesses to £190 billion.
A spokesman for the banks said: "The banks' efforts to encourage customers to come forward with borrowing proposals are set against this overall challenging economic environment. The business demand for credit remains weak."
Lee Hopley, chief economist at manufacturers' organisation EEF, said SMEs continue to be frustrated by the cost and terms and conditions of borrowing and that "a lack of competing sources of finance outside of banks remain part of the problem".
Meanwhile, TUC general secretary Brendan Barber said: "Project Merlin has failed on two counts: the banks have not increased lending sufficiently and the Chancellor has failed to exert any influence, even on the banks that are majority-owned by taxpayers.
"Increasing bank lending to businesses is absolutely vital to creating jobs and getting our economy moving again. But despite his highly spun showdown with the banks last year, the Chancellor has caved in and let them off the hook."
David Hillman, spokesman for the anti-poverty Robin Hood Tax campaign, said: "If the Government really wants the banks to contribute more to our economy and society, ministers must do more. The Prime Minister pledged that if Project Merlin targets were not reached, then the Government would consider new taxes on the banks. Now is the time to honour that commitment."