News

September 14, 2012

Plans for a state-backed business bank take shape

A new state-backed business bank is looking increasingly likely as chancellor George Osborne and business secretary Vince Cable have announced their intention to examine the option in more detail.

The announcement was made this week as Vince Cable set out his vision for the future of British Industry in the next 20 years. He said: "Government needs to be more like business, by making strategic plans and sticking to them. Our first part of that plan is lifting the barrier that poor access to finance puts on growth."

Cable said that a business bank would "help companies invest in capital and drive their expansion. The scale and modus operandi of the institution are still under discussion, but it could operate through alternative providers such as the new challenger banks and non-bank lenders. Not only would this boost their lending capacity, but would also corral existing provision such as co-investment and guarantees to support business expansion."

Welcoming the news, John Walker, national chairman of the Federation of Small Businesses (FSB), said: "Housing all the Government's schemes under one umbrella organisation will mean that small firms know where to approach."

However, John Longworth, director general of the British Chambers of Commerce (BCC), has cautioned that the new bank must offer a "full service". He said: "A brand new, fully-fledged business bank is needed to lend to new and growing companies, many of whom report difficulty accessing finance. Companies are clear, though, that nothing less than a 'full service' business bank will do — a rebranding exercise for existing government schemes or one that uses existing bank infrastructure is not enough."

Alexander Schwendtner, UK managing director of credit risk experts Graydon, said: "It is laudable that the Government remains open to the prospect of creating a state-backed bank for SMEs.  However this is, at best, a medium-term solution which isn't going to get money flowing to those companies looking to invest for growth between now and the end of 2012.

"It's difficult to resist the temptation to be skeptical about the likely outcome of such an initiative given the questionable success to date of efforts to drive SME lending."