UK lawmakers criticise government over business lending schemes

LONDON Mon Jan 20, 2014 7:01pm EST

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LONDON Jan 21 (Reuters) - Britain is failing to help businesses borrow the cash they need in order to grow, a panel of lawmakers said on Tuesday, criticising government schemes designed to boost lending as ad-hoc and untargeted.

In Britain, as in much of the rest of Europe, the small and medium-sized business sector is seen as a crucial component of economic recovery, helping to create growth and jobs while generating tax revenues to close the public deficit.

However, lawmakers scrutinising the work of the British finance and business departments said the government's current approach to supplementing and stimulating bank lending to the sector was not working for many firms.

"Despite government attempts to encourage lending to SMEs (small and medium-sized enterprises) many still struggle to access the finance they need," said Margaret Hodge, chair of a parliamentary committee on public spending.

Data showed 6,000 firms had used government schemes to access cash in 2012/13, but Hodge said that more could have benefited if the government had better promoted the various programmes on offer. Too many firms ended up using expensive financing through credit cards and overdrafts, she said.

Ahead of an election in May 2015, both of Britain's main political parties are vying to be seen by voters as the champion of an SME sector which last year accounted for 59 percent of private sector jobs and had a turnover of 1.6 trillion pounds ($2.63 trillion).

The government, a coalition led by Prime Minister David Cameron's Conservative party, was criticised last year after a report accused Royal Bank of Scotland, which is 82-percent owned by the state, of pushing customers into high cost restructurings so it could take control of their assets.

Tuesday's report called for better co-ordination among the government's schemes, which range from providing start-up loans to giving banks funding at below-market rates on the condition that they lend it on to businesses.

"The departments' schemes are managed as a series of ad- hoc initiatives that are launched to address particular weaknesses in the market, rather than to act as a coherent programme," the report said.

The government needed do more to identify high-growth areas and target funds towards them, it added.

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