In September, the UK’s Department for Business, Innovation and Skills announced plans for a new state-backed business bank, claiming "it has the potential to transform business finance in the UK". Everyone is waiting to find out more information on this proposition and wondering what impact it will have on SMEs as the Government strives to find ways to make funding more accessible to businesses.
The move, announced by Business Secretary Vince Cable, could leverage up to £10bn to facilitate the provision of loans, including long-term capital, to UK businesses once it becomes fully operational. Crucially, it will also serve the purpose of bringing together the Government’s various funding initiatives. The challenges companies continue to face with regards to securing credit remains key to the economy’s stuttering recovery.
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While this new bank does have potential, we look forward to seeing these plans become a reality. The finer details are likely to be unveiled in the Chancellor’s Autumn Statement in December, with the bank expected to become operational 12-18 months thereafter. This will undoubtedly provide hope to businesses and signify that help is on the way. The bank also demonstrates the Government has a long-term vision to support businesses through the eventual recovery.
However, it is the immediate picture that remains less clear, leading us to reflect on previous Government schemes which have been set up to encourage the banks to lend to businesses. While these initiatives have come in different guises, ranging from the Enterprise Finance Guarantee to the Funding for Lending Scheme, it is hard to escape the reality that they have largely failed. Mr Cable even admitted that the Project Merlin initiative, despite good intentions, only succeeded in stabilising the dwindling levels of credit available rather than increasing it.
Indeed, figures show that net lending to SMEs has now decreased in every month since the last general election in May 2010. Until this decline is arrested and reversed, the gloom surrounding the health of the UK economy is likely to remain prevalent. Getting this right ought to be intrinsic to the Government’s strategy over the coming months.
With two and a half years until the next election, it has the opportunity to lay down the foundations to achieve results where its predecessors have failed. How central the business bank will be to the eventual recovery remains to be seen, but we wait with eager anticipation for its details in next month’s Statement.
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By GlobalData Evette Orams is the managing director of Hilton-Baird Financial Solutions
