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Speech by the Commercial Secretary to the Treasury.
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As a Treasury Minister, I felt that I couldn’t possibly turn down the opportunity to speak at this afternoon’s event. More seriously I wanted to be here at the launch of what is a very significant initiative by the major British banks to reconnect with their SME business customers and to help British businesses obtain the finance they need - finance they need to grow their own businesses and to drive the growth of the economy.
Much of the economic and political debate of the past three years has focused on the role of the banking sector in our society; the relationship that banks have with their customers; and how this feeds through to the rest of the economy.
In the past few years this relationship has seen its fair share of ups and downs. And regrettably there seem to have been more downs than ups.
Which is why this event - and similar ones being held up and down the UK - are so important.
As today is all about how our largest banks are looking to reconnect with the rest of the economy.
- By this I mean providing the lending that viable businesses need to invest and expand.
- Supplying the capital to stimulate enterprise across the country.
- And ensuring that we a have financial sector that serves its customers, has their trust, as well as their best interests at heart.
This is vital.
Because if our financial sector doesn’t tick these boxes then we’ll have an economy that struggles to respond to today’s challenges; a country that doesn’t fulfil its potential; and a recovery that fails to gather momentum.
It’s no exaggeration to say that private finance is the lifeblood of British business…
…and that when our banking system is healthy, then so is our economy.
But the current environment has thrown up particular challenges as banks have retrenched; weathered the financial storm; and looked to rebuild their balance sheets.
I’m all too aware that SMEs in particular have been facing difficulties when on the hunt for affordable lending.
So, as a Government, we’ve been working with the banks to try and get credit flowing again.
Part of this is the recent Project Merlin announcement.
Among other things, this agreement will ensure that, this year, the UK’s largest banks will make available up to £190 billion to creditworthy businesses… of which £76 billion has been earmarked specifically for small businesses.
Which is an increase of almost 15 per cent on last year’s lending figures to small business.
If demand exceeds this, the banks will lend more.
I think we can all agree that this is an excellent starting point… but there’s still more that needs to be done…
…and ultimately it will be the banks, not the Government, who will have to lead this work.
Which is the focus of today’s event.
I am not only pleased to see the financial sector is taking steps to restore business confidence, and renew the trust that’s been lost. But I also want to commend, not condemn, the BBA and the major banks for the intense effort they have put in over the past nine months in this task.
Through the Business Finance Taskforce - made up of the British Banker’s Association and the UK’s six largest banks, the industry itself is taking forward a range of initiatives to help better serve its customers. And it has been working closely with Government to shape the Taskforce’s agenda.
Collectively, these reforms - known as the ‘Better Business Finance’ package - will:
- improve the relationship that banks have with their businesses;
- ensure better access to finance; and
- provide better information to increase transparency.
And it’s the first of these objectives that I want to concentrate on.
There has been much debate surrounding whether what we’re currently seeing is either a supply or demand problem.
Certainly, data continues to show that demand for credit from small businesses remains relatively weak, and this is set against a backdrop of lending levels that are on a downward trend.
But from my conversations with business, I know it’s not that simple.
A large part of demand is about confidence… and if businesses don’t have confidence in the banks then they’re unlikely to come asking for credit.
That is why I see the task of rebuilding business-bank relationships as so important.
Rightly or wrongly, businesses across Britain believe there’s been a decline in banking standards and a deliberate turning away from ‘relationship banking’ and personal service.
Rightly or wrongly, many businesses also feel that when they do approach their local banks they’re not made to feel welcome - that they’re now considered too ‘high risk’ even when their businesses were never seen as risky before.
Undoubtedly, following the crisis, things have changed.
Banks are understandably more risk averse.
But this perception may also be adding to the apparent suppressed demand for credit - maybe it’s not so much a lack of demand as discouraged demand that we’re seeing.
I know that this message has been taken on board by the banks.
It’s at the core of the various initiatives included as part of the ‘Better Business Finance’ project.
It’s the focus of the new lending code and principles, which will set out the minimum standards that smaller enterprises can expect from banks… and gives details of the help and advice that banks are making available.
And it has helped drive the new transparent appeals process, which will give businesses the chance to voice their concerns if they feel they’ve been unfairly refused credit.
This appeals process will be independently reviewed to ensure that each bank has a fair and equitable process.
I’m pleased to say that the banks will be launching the new Code and Principles, as well as the appeals process, next month.
From May, they’ll also help coordinate a new national business mentoring network - using both mentors recruited from their own ranks and, in the first instance, mentors from the not-for-profit sector.
The introduction of new, independent data on business finance supply and demand trends across the UK will also help to restore relationships. I look forward to seeing the first results from these new surveys in July and to tracking the story they tell thereafter.
And our major banks have agreed to publish a regular independent survey of businesses’ experience when looking for access to finance.
This will give a strong indication of how well the banks are doing in meeting the commitments they’ve made.
Taken together, these various initiatives will make the decisions of financial institutions easier for everyone to understand, but also allow customers to hold their banks to account.
That way, we all know where we stand.
And we all know what we can expect.
But what businesses really want is better access to the funds they need for day-to-day financing as well as investment and growth.
Which is why the Government has welcomed the decision of the major UK banks to set up the Business Growth Fund.
This will provide £2.5 billion in equity investment for established small businesses with growth potential over the next 10 years.
And help equity financing again become more of a mainstream financing option.
If a loan or an overdraft isn’t the most appropriate form of finance for a small business, then banks should say so.
And help business find the type of finance that is right for them - whether this is an alternative banking product - like supply chain or invoice financing - or non-bank lending, including equity.
That’s why today is so important.
Because you can have the best policy in the world, but if no one knows it exists then it’ll never be a success.
Which is why I want to tell you about the other website that is launched today.. It is a website that may be even more important for the UK economy than the 2012 ticket website.
So the work of the Business Finance Taskforce, and the ‘Better Business Finance’ initiatives, are important first steps in re-establishing confidence and trust in the financial sector.
It’s this work that is helping the sector as a whole reconnect with the rest of the economy.
And this can’t be overstated.
As there’s no hiding from the fact that our banks bear some responsibility for what’s happened to the economy.
But equally, they have an important role in getting us out of the mire.
By providing the finance that’s essential for investment.
The advice that helps businesses grow and succeed.
And the confidence that underpins a flourishing economy.
So I welcome the progress that the banks are making.
I recognise that the Taskforce is taking is taking its job very seriously.
And I’m happy to be part of this process.
Where banks, businesses and the Government are working together to create a strong financial sector… one that serves the interests of its customers, has the confidence of investors, and helps deliver a strong and sustainable economy.