Speech by the Financial Secretary to the Treasury, Mark Hoban MP, at BBA Taskforce event

Speech by the Financial Secretary to the Treasury.

This was published under the 2010 to 2015 Conservative and Liberal Democrat coalition government

Mark Hoban

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I am very pleased to be here today as events like these provide the perfect opportunity to escape the Westminster bubble, the London bubble even, and see first hand what the recovery feels like across the country.

Because it’s absolutely critical that we, the Government, keep a close ear to the ground, hear directly from businesses, so that we can understand the challenges that you face. And of course, the focus of the BBA Taskforce events, is to understand the challenges that businesses and banks face together in the recovery.

Banks and businesses have to work together to fuel a private sector recovery. That much is obvious. But it’s one thing to wish it, quite another to realise it.

As the Chancellor said in his Mansion House speech a few weeks ago, banks across the system are shrinking their balance sheets not because we the Government or the regulators demand it, but because the markets themselves demand it.

Before the crisis the balance sheets of our banks shot up from around 300% of GDP in 1998 to a staggering 550% just a decade later. The de-leveraging that’s now taking place of course acts as a powerful drag on recovery.

At its core, the financial crisis was a crisis of trust - between market participants, but just as importantly, between banks and their customers.

Of course, as I’m sure you’re all keenly aware, that crisis was strikingly apparent here in Newcastle. The queues of people outside branches of Northern Rock - the first run on a British bank in more than a century - is a lasting image of the crisis.

But three years on from the nationalisation of Northern Rock, and an array of other financial sector interventions, this Government is taking the first steps to exit from these. And we have already announced that Northern Rock is being put up for sale.

But this not simply a return to business as usual. The last crisis cost the taxpayer billions of pounds. This is a situation we cannot afford to repeat.

Regulatory reform

We are taking the necessary measures to reform our regulatory system to ensure we effectively monitor and manage financial risk and we are reforming the financial system itself to ensure that taxpayers will not be on the hook for bank failures.

Earlier this year, the Independent Commission on Banking produced its Interim Report. It made two very important recommendations that the Government supports in principle…

Bail-in instead of bail-out - so that private investors, not taxpayers bear the losses if things go wrong.

And a ring fence around better capitalised high street banks to make them safer, and to protect their vital services to the economy if things go wrong.

We look forward to the Commission’s final recommendations, but we haven’t spared time to fundamentally reform our domestic regulatory system.

It’s clear that the tripartite system of regulation failed utterly in its task to monitor and address risk in the financial system. Critically, it failed to monitor the macro and systemic risk that grew in the sector over the previous decade.

Last month we issued our White Paper on regulatory reform which revamps the system of domestic regulation. We are creating a permanent Financial Policy Committee within the Bank of England to monitor overall risks in the financial system, identify bubbles as they develop, spot dangerous inter-connections and stop excessive levels of leverage before it is too late.

We are abolishing the Financial Services Authority in its current form, and transferring its significant prudential functions to a new Prudential Regulatory Authority that will sit in the Bank of England. Together these two bodies will bring judgement and foresight to regulation rather than mere box ticking.

And we are also bringing a new approach to protecting consumers, to ensure that they are at the heart of the financial system.

A new Financial Conduct Authority will oversee the conduct of financial services firms, the operation of markets and the protection of consumers.

Rebalancing the economy

These reforms go a long way to ensuring we create a financial system that supports sustainable growth across the economy, and doesn’t jeopardise stability.

But at the same time we are taking the necessary steps to rebalance our economy away from over reliance on the financial sector to support growth across all regions and all sectors.

Our Plan for Growth, published in March this year, set out our plans to secure a private sector-led, sustainable recovery through export and investment. It included plans to reduce the regulatory and tax burden on businesses and entrepreneurs, and invest in our skills and infrastructure base as a springboard for private sector growth.

But that doesn’t mean we can ignore financial services. Indeed it is only by working with the financial services industry that we can achieve these goals.

It is only by healing and restoring the relationship between banks, businesses and individual consumers that we can drive a sustainable recovery.

In fact later today, I’m visiting Peacock Medical Group, a business that provides innovative medical supplies for both the NHS and the private sector.

It provides a perfect example of how banks and business can work together constructively and support each other in tough times. Because, in spite of the crisis, the business capitalised on its strong relationship with Lloyds Banking Group to secure an extension to their credit lines which allowed them to invest in increasing the workforce, buying new machinery, and cover cash flow pressures. As a result, the business grew by approximately 40% in two years.

The Better Business Finance Initiatives play a crucial role building relationships like this one. The five regional events so far, including today, have brought nearly a thousand businesses together with the banks, to hear what is changing and to talk about how the banks can help them to grow. And there are still ten more events to happen across the country.

There has also been substantial progress on a number of other initiatives including the launch of the micro-enterprise lending code, new lending principles for medium and larger businesses, a new transparent appeals process for SMEs refused credit, and the new process to initiate a pre re-financing dialogue 12 months ahead of any loan expiry.

I also welcome this week’s launch of the Business Mentoring scheme. Through this scheme the BBA is helping businesses find existing support in their area, as well as providing mentors from the banks themselves.

Mentoring can play an important role in building the capacity and confidence of small businesses, especially in tough economic times like today.  Mentors provide an invaluable sounding board for new ideas, a wealth of networks and contacts, and that personal, trusted advice that only comes from peers that have been there and done it - if that sounds like it might help your business, then I’d urge you to take a look at the webportal.
But as well as advice, businesses need credit.

Businesses want better access to the funds they need for day to day financing as well as investment and growth.

Of course this has proved a complex and controversial area, as it is extremely difficult to know where the balance lies between supply and demand.

That is why I welcome the introduction of a new, independent survey through the BBA Taskforce to address this question, to understand what’s happening on the ground in terms of demand for and access to credit. I look forward to the first set of results in the coming week.

But in the mean time, we haven’t been complacent on the issue.

We have been working tirelessly with the banks to try and get credit flowing again.

Because, whilst we know that banks and some businesses need to deleverage, we wanted banks to send a clear signal that they had the capacity to lend to support businesses.

That is why we reached our agreement with the UK’s biggest banks to commit to lend £190 billion of new credit to all businesses in 2011. And that figure includes £76 billion being made available specifically for SMEs. A substantial increase on the £66 billion lent to SMEs in 2010.

The Government will use every tool at its disposal to make sure that the banks meet their published commitments.

To support more bank lending, we’ve also committed to continue the Enterprise Finance Guarantee Scheme for the next four years.
On the equity side, we’re also continuing with Enterprise Capital Funds, which invest up to £2 million in small innovative companies. And we welcome the commitment from the BBA’s taskforce to the new Business Growth Fund that is now ready to invest in Britain’s businesses.

This fund will provide up to £2.5 billion in equity investments of £2 million to £10 million for established businesses with growth potential, and help to make sure that debt finance isn’t their only option.

And I am pleased to see Stephen Welton here today, the CEO of this fund, and I’m sure he would be happy to talk with you in more detail about the fund.

I am greatly looking forward to the first of my quarterly meetings with Stephen on the progress of the fund, and I am equally pleased that Lucy Armstrong, who will be speaking after me, has agreed to attend these meetings to ensure that the views of business are fully represented.


It’s only through cooperation and engagement between banks and business, through the work of the Taskforce and the Better Finance Initiatives that we ensure we are all pulling in the same direction.

Events like this today are essential to re-establishing confidence and trust between business and the financial sector.

It’s in our collective interest to create a strong and stable financial sector, one that serves the interests of its customers, one that delivers a sustainable economic recovery.

I welcome the work that the Taskforce is undertaking, and I welcome the progress that has been made to realise this ambition.

I look forward to working with you all in the months and years to come.

Thank you.

Published 7 July 2011