Treasury wants banks to increase loans to small businesses

In an attempt to persuade UK banks to lend more money to small businesses, the CEOs of major UK banks were summoned to a meeting with Alistair Darling and Treasury officials.

It's clear the Government is distinctly unhappy with the way banks are acting at present. It feels the banks have reneged on an agreement, reached as part of their rescue deal, that they would continue to lend to small businesses at a certain level.

"Money and insurance provided by the Government should ensure banks lend at the level they agreed to", said a Government spokesperson.

But when the Government agreed to save RBS and Lloyds Banking Group with an injection of £37 billion of taxpayers' money and insurance guarantees of some £600 billion, it seems they failed to stipulate the level of interest the banks charge for loans to small businesses.

So despite the Bank of England base rate being at a record low of just 0.5%, and LIBOR under 1.0%, when banks do agree to lend to small businesses they are typically charging interest rates of between 6% and 8%.

Some banks are also accused of turning small businesses away from loans under the Enterprise Finance Guarantee scheme, forcing them into other, more expensive loans that are more profitable for the banks.

After meeting the bank bosses Alistair Darling told reporters, "While in some areas there have been improvements, in others there is an awful lot more to do. I think in relation to small and medium-sized enterprises, we need to be satisfied that the lending agreements entered into are honoured and that every single business gets a fair deal,"

In response to the meeting, Shadow Chief Secretary to the Treasury, Philip Hammond has called on the Government to “stop talking and start acting” in order to get banks lending to businesses again.

“After all the fuss and fanfare around today’s meeting, the outcome will not make one jot of difference to struggling businesses up and down the country”, he added.

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