The Business Secretary Vince Cable has demanded that banks are more transparent in terms of providing finance to SMEs.
Mr Cable said that if banks did not publish figures showing how much they were lending to SMEs, and if they were meeting set targets set out by the government, the banks face new taxes on profits, bonuses and balance sheets.
The deal, known as Project Merlin, lasts for one year. Cable told the House of Commons that if targets were not met, a new approach to dealing with SME access to finance would have to be formulated. SMEs are said to be at risk of losing the ability to translate homegrown innovation into economic growth for the manufacturing sector.
As well as saying that he would put extra pressure on banks to disclose what they were doing to make credit available to SMEs, he said of Project Merlin: “It will be a question of the Government saying, ‘Sorry, this agreement hasn’t worked and we are absolved of any commitment on our part in terms of taxation.”
At the National Manufacturing Debate in Cranfield two weeks ago, around two thirds of those delegates asked said that they were using their own capital to invest in new machinery and infrastructure. This indicates that SMEs (and perhaps even larger firms) aren’t reliant on funding. However, Mr Cable said he believed they had “discouraged demand” by charging high prices or showing lack of interest in lending.
Mr Cable has asked the larger banks, demanding they publish the incentives for their chief executives and senior managers to increase lending to SMEs under Project Merlin. When the agreement was announced in February this year, the Chancellor confirmed chief executives’ pay would be linked to SME loans.
Mr Cable said he wanted all the banks to tell customers why they had been turned down for loans so they could appeal. He will also publish two new surveys, starting next week, to see the way in which banks are dealing with their customers, and which parts of the country face shortages of finance.
He also said Lloyds Banking Group and Santander had achieved SME targets assigned to them. He then announced that the government still had the option to order RBS to lend more.
A grilling by the Treasury Committee exposed splits between RBS, HSBC, Lloyds and Barclays over recommendations in the government’s Independent Commission on Banking.
Lloyds chief executive Antonio Horta-Osorio, said he believed that there is a government subsidy of investment banks that were part of universal banks with implicit government backing. However, Bob Diamond, Barclays’ chief executive, said Barclays Capital was not subsidised by retail deposits.