Lord Sharkey
To ask Her Majesty’s Government what additional funding to small and medium-sized enterprises, particularly in deprived communities, has resulted from the Funding for Lending scheme.
Lord Newby
My Lords, the Funding for Lending scheme is not specifically targeted at particular regions or sectors of the economy; it is designed to incentivise banks to increase lending in aggregate, which will of course have a positive effect on the economy as a whole. The early indications have been encouraging but it is too soon to judge the impact of the scheme. The Bank of England will publish quarterly net lending figures for each participating bank from 3 December.
Lord Sharkey
I thank the Minister for that Answer. However, the fact is that the Bank of England’s last quarterly report shows that the stock of lending to SMEs continues to decline. It also shows that the number of loan applications themselves is down. I note that only 50% of SMEs had ever heard of Project Merlin. Could the same lack of awareness of Funding for Lending be contributing to the problem? Do the Government know how many SMEs are aware of this scheme? What are the Government doing to make sure that they are aware of the scheme?
Lord Newby
My Lords, the figures so far published do not take account of the impact of Funding for Lending, which only opened in August, and not least because it takes some time for loan approvals under the scheme to be finalised. I absolutely agree that promoting the scheme will be crucial. We are encouraged by the steps that the banks and building societies have already taken to do so, including double-page advertisements in national newspapers and promoting mortgage products very actively, not least through their websites. The Bank of England is administering the scheme but the Treasury is directly involved in monitoring it via a joint oversight board with the Bank.
Lord Mitchell
My Lords, Funding for Lending is the very latest of a whole plethora of programmes announced by the Government to stimulate SMEs. But here is the truth: very little of the money is getting through to the SME community. Why is that? It is because the chosen method of distribution is through the high street banks, and their interest is more in stuffing their own balance sheets rather than advancing funds for SMEs. When will the Government realise that the banks are chronically risk-averse and ill suited to this important task?
Lord Newby
My Lords, it is simply not true that the banks are stuffing their balance sheets as a result of this scheme. This scheme gives the banks incentives to lend, not to stuff their balance sheets. There is considerable evidence that the banks are offering loans to SMEs at significantly lower interest rates and offering new mortgage products. These are already beginning to generate new business.
Lord Methuen
Is the Minister aware that Rolls-Royce, in order to fund its suppliers, has lent them £500 million, because the banks are not doing so?
Lord Newby
My Lords, it is a very sensible approach for large companies to provide credit down the supply chain. It is not just Rolls-Royce—many other companies are doing the same, and I think that they should be encouraged to do more of it.
Baroness Wall of New Barnet
My Lords, I agree with the Minister that the banks are lending to small and medium-sized business. However, they cannot get the money for progressing their businesses where they are situated. I have recent experience in visiting a number of small engineering companies which are being offered money to move and establish bigger premises but not to develop where they are. It is becoming quite a problem for such companies.
Lord Newby
I do not think there is any general principle involved in that. The new products being designed under Funding for Lending would enable SMEs to get additional capital where they are. For example, RBS has introduced a new scheme under this programme that will cut the rate of lending by between 1% and 1.6% for small businesses and abolish arrangement fees for new loans. Those are not limited to companies that are moving but apply equally to companies which want to expand where they are.
Lord Flight
My Lords, the scheme makes lending very attractive to banks because the cost of funding is remarkably low, but there are many situations where what is wanted is equity rather than loan capital. Will the Government review some of the changes to the EIS arrangements for providing equity, where the changes in loss relief and the latest FSE changes in marketing EIS are discouraging the raising of equity capital for small businesses under the EIS scheme?
Lord Newby
My Lords, there has been a long-standing problem in small businesses raising equity in the UK. The EIS is one component in doing that. Of course, as we look towards next year’s Budget, we are reviewing all programmes that might offer any capacity to increase the flow of funds into small businesses.
Baroness Brinton
My Lords, given that the ITEM club has just predicted that lending to SMEs by banks will fall to a six-year low this year, with 38% of applicants being rejected in quarter 1, and given that banks seem to be using money from the Bank of England to lend rather to homeowners with equity, will the Minister consider ring-fencing a good proportion of the Funding for Lending scheme funds specifically for SMEs?
Lord Newby
My Lords, I think that a large proportion of these funds will be used for SMEs. That is why the banks have introduced new products specifically for SMEs following the introduction of the programme. I have already referred to RBS. Lloyds has done a similar thing and is reducing the interest that SMEs pay by 1%. Lloyds has placed double-page ads in some of the papers, which noble Lords may have seen. So the banks are directly targeting at SMEs a significant proportion of the funds that will now be available.
Lord Barnett
My Lords, given the urgent need for lending now, how soon does the Minister expect the first scheme to be in operation? Are the banks likely to offer 100% guarantees or will they require deposits?
Lord Newby
The scheme is already in operation and the process under which the loans are approved is going through. I do not know whether the noble Lord meant 100% in respect of mortgages as opposed to loans but, for mortgages, the scheme is being made available for first-time buyers, particularly in respect of the Government’s new buy scheme.