MPs lambast ‘incoherent’ support for small firms

MPs criticised the management of the Treasury and Bank of England’s Funding for Lending scheme

A man walks past the Bank of England in the City of London
Philip Aldrick The Times
Last updated at 12:01AM, January 21 2014

Small businesses are being held back by the Government’s failure to manage properly the financial support that it offers the sector.

According to a leading committee of MPs, “ad hoc” oversight of state-backed loans and a lack of specific goals are holding back efforts to improve the supply of credit to the cash-starved sector and wasting taxpayer money.

The Public Accounts Committee has urged the Government to give the new “business bank” powers “to start managing the various schemes as a coherent programme”.

The committee said: “The Government spends a considerable amount of taxpayer-funded money promoting better access to finance for SMEs, but the departments could not demonstrate that their schemes have successfully addressed the market failures they were designed to correct.

“Far from encouraging more lending to SMEs, investment has declined.”

The Government has made helping small companies, which employ half of Britain’s 30 million-strong workforce, an economic priority. Since 2011, the Department for Business, Innovation and Skills (BIS) has been running six schemes providing £2.85 billion of loan support.

The Treasury and Bank of England’s Funding for Lending scheme, established in August 2012, has handed banks and building societies a further £17.6 billion of cheap credit to pass on to small companies and households.

In addition, the department has launched the British Business Bank, with £1 billion of capital at its disposal. The efforts were supposed to stop banks pulling credit out of the sector.

However, Bank of England data shows that lending has shrunk by £16.8 billion since May 2011, when figures were first collected. The stock of loans in November was £167 billion, with banks withdrawing credit most months of last year.

In damning comments about the schemes’ management, the committee said that BIS and the Treasury “have not done enough to raise SMEs’ awareness of the financing options available”.

It added in its report, Improving Access to Finance for SMEs: “The departments have no common understanding about which parts of the sector generate the most growth, and where government support would therefore be most beneficial.”

The MPs urged the Government to hand oversight to the British Business Bank, which “is designed to better identify and fill gaps in the market for financing SMEs”. The Business Bank has financed £1.3 billion of loans and investments so far and will be spun out of BIS once its clears European Union state aid rules, expected later this year.

The committee’s report also demanded that the Government set clearer goals, reserving particular criticism for Funding for Lending. The Bank has committed to start publishing a breakdown of usage data by sector after the end of the month, when the scheme will become focused on the small business sector.

A Government spokesman said: “The PAC’s assessment does not reflect the reality, which is that credit conditions for SMEs are improving. But we want to do more, which is why the British Business Bank will be fully operational later this year.”

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