Small firms need a ‘British Investment Bank’


This article was first published on the Telegraph on 31 January 2013.

And because we can only address the problem of business financing by listening to businesses themselves, in the coming months we will be working closely with businesses to work out how a British Investment Bank would meet the challenges they face.

The impact of the financial crisis on bank lending is well known, but this is a problem with deeper roots. A study carried out for the Labour Party by Nick Tott found that the lack of long-term, patient investment has undermined businesses for decades, with the UK being the only country in the G8 without a government-backed investment institution to address this problem.

The ideas, inventions and hard work of small businesses who build our economy are a vital component of growth. But too many of these small businesses are starved of the funding and investment they need with the most recent figures from the Bank of England showing lending to businesses falling by £4bn in the latest three months.

The British Chambers of Commerce have been leading the debate in this area and so we are this week launching a consultation process with their members and other companies. Over the coming months members of Labour's Treasury and Business teams will be meeting firms in every region of the UK to learn from their experience to help design a British Investment Bank which meets the long-term funding challenges they face.

The government has claimed to be addressing these problems, but once again the rhetoric is exposed by the reality. Their Project Merlin deal with the banks to increase lending actually saw net lending to small businesses fall, as it has continued to ever since despite other schemes.

Last year Vince Cable seemed to be finally recognising this failure and accepting our approach. He boasted at his party conference that he would set up a government-backed bank to get billions of pounds to businesses that need it. Unfortunately, those hopes now seem to have run into the coalition sands, as he has once again failed to persuade the Treasury of the need to act.

We still await any details of what this bank will do, and when and how businesses will be helped. It looks like they will have to wait years for it to be up and running, while the Treasury has allocated just £300m to funding it in this Parliament.

While the government fails to act, we learned this week that lending to UK businesses fell by £ in December alone and is down by £18.6bn over the past year while businesses continue to suffer. As with the Green Investment Bank, whose future banking powers have been thrown into doubt by George Osborne missing his targets to bring down the UK's debt, the Government's shambolic approach is undermining growth.

There are also real concerns that the scheme the Government is looking at will simply repeat the failures of their past plans like Project Merlin by relying on the unreformed high street banks as the main delivery mechanism. In fact the Chancellor has suggested that it will simply 'bring together existing schemes' to help small firms.

We believe that a proper British Investment Bank, designed to meet businesses' needs and backed by both the Treasury and Business departments, would play a vital role in solving the small business funding problems in the UK.


Joint article with Ed Balls MP