Banks: Funding for Lending Scheme

Lord Newby Excerpts

Tuesday 4th December 2012 Lords Chamber

[Lord Sharkey]

To ask Her Majesty’s Government what is their assessment of the performance to date of the Funding for Lending scheme.

[Lord Newby]

My Lords, we are still in the very early days of the scheme. However, initial indications have been positive. Bank funding costs have declined, mortgage availability has improved and quoted rates on fixed-rate mortgages have decreased since the scheme was announced. Participating banks have also introduced discounted loans for small and medium-sized companies.

[Lord Sharkey]

My Lords, there is a lot riding on the Funding for Lending scheme, but its current performance is far from clear. For example, in quarter 3, Barclays increased net lending by nearly £4 billion and the taxpayer banks—RBS and Lloyds—decreased lending by over £3 billion the same period. Overall, net lending to businesses continues to decline. Does the Minister agree that the Funding for Lending scheme can be judged a success only if it helps to produce an increase in lending to business, especially small businesses? Will he persuade the Bank to disaggregate the figures it publishes so that we can see exactly how much lending is going on to small businesses when we see the quarterly Funding for Lending scheme report?

[Lord Newby]

My Lords, one of the core principles and purposes behind the scheme is to increase lending to small and medium-sized businesses. We are confident that as the scheme gathers pace, it will be clearer that it has been effective. On figures on lending to small and medium-sized businesses, the Bank already publishes the quarterly Trends in Lending report, which covers SME lending. The most recent report was published in October. This report gives a very good time series about what is happening to lending to SMEs, and we are not convinced that having a second, broadly equivalent, series produced on a slightly different date would help to explain what is happening any more clearly than is already the case.

[Lord Barnett]

My Lords, the press to some extent has supported the Minister. The Financial Times said:

“The government’s flagship scheme to encourage banks to lend more to businesses and consumers is showing some signs of working—for banks, at least, if not yet for their customers”.

That is what most of the press have been saying: the banks have been taking the money and not lending it. If, in the process, the Bank of England loses money on the swaps it is doing on mortgages, will those losses be transferred to the Treasury in the same way as its profits were?

[Lord Newby]

My Lords, I think that the noble Lord is missing the fact that, over the period, the banks that are signed up to this scheme have made an additional £500,000 of loans to businesses and individuals. This is exactly what the scheme was intended to do. All the evidence is that the participating banks intend to use it to a greater extent in the future than they have up to now—it is very early days—and therefore I am sure that the question that the noble Lord has in his mind will not arise.

[Lord Haskel]

Did the Minister notice in today’s paper that some of the banks have not yet prepared their offer under this scheme? What are the Government doing to chivvy them up?

[Lord Newby]

The important thing is that the big banks have got a very clear offer. RBS, for example, has launched a £2.5 billion fund for SMEs specifically under this scheme, with the rate of interest charged being 1% less than would otherwise be the case. Lloyds TSB has also reduced its rate by 1% and noble Lords will no doubt have seen the double-page ads that it has taken out in the papers to persuade small businesses to take out a loan. Barclays has introduced a 2% “Cashback for Business”. So the big banks are already absolutely on the case; the smaller banks, which have signed up over a period, are, indeed, developing their offers.

[Lord Davies of Oldham]

My Lords, the Minister is surely guilty of great complacency. Is this scheme not going the same way as Merlin and various other efforts under this Government? Will he not acknowledge that £500,000 is a flea bite in terms of investment in our society and in business at the present time? Will he accept the fact, which he did not mention in his figures, that lending for business over the past quarter as a whole decreased by £3.3 billion? What on earth the Minister is doing producing complacent responses to these questions, I do not know. Do we not quite clearly need a British investment bank, backed by the Treasury, that can ensure that funds are made available to industry and business in order to guarantee recovery?

[Lord Newby]

My Lords, only a Labour Party Front-Bench spokesman could say that £500,000 is a flea bite. The figures show clearly that there is a realignment of activity in the lending market towards new entrants, which is exactly what the Government and, I think, the Opposition have been seeking to bring about. If we look at a bank such as Aldermore, it is just about the best performer in terms of increasing its size of offer. I am sure that noble Lords will be particularly pleased to see that the building society sector, with Nationwide very much in the lead, has significantly increased its lending specifically because we have the Funding for Lending scheme in place.