Banking

Brian Binley Excerpts

Wednesday 15th January 2014 Commons Chamber

[Mr Brian Binley (Northampton South) (Con)]

I congratulate the hon. Member for Wrexham (Ian Lucas) on a thoughtful speech. At least it ranged wider than the speech of the shadow Chief Secretary, for whom I have great respect but who surprised me by concentrating quite so much on bonuses, when this whole matter is of much wider import, quite frankly. Indeed, bonuses are an infinitesimal part of our banks’ throughput and lending power, which is what I want to concentrate on. I welcome this debate and the thought that a successful banking sector is critical to our future policy.

We can argue about the reasons for the financial crash—I am sure we shall do so for the next 10 years—but there is no doubt that it undermined the fundamentals of our economy. I praise the Government and welcome their attempt to rebalance our economy by strengthening the contribution of other sectors and of regions beyond the City of London. I believe that the Government are trying to do that, and the hon. Member for Wrexham spoke about it.

It is easy to resort to banker bashing—I have done my fair share of it in the Chamber over the past three years—but we must not forget that banks play a fundamental role in our economy. We need to avoid the traps created by simple solutions and, indeed, sometimes by European interference. I am fearful of the transactions tax, which will harm the City enormously, and I hope that hon. Members on both sides of the House will fight hard to ensure that it does not hit us in the way that a number of people in Europe hope that it will.

Banks are needed first and foremost to maintain the supply of credit to enable the economy to flourish. The financial crash restricted the supply of credit to the economy, in terms of mortgage approvals and business lending. I recognise the fact that, following the excessive use of collateralised debt obligations, banks needed to improve their balance sheets to lessen the risk of a further crash, but the consequence of the response to the crash has had an impact on the wider economy and our path to recovery.

There are welcome signs that the general economy is recovering and that our macro-economic situation is improving. Business and consumer confidence is returning, which is critical. Growth is gaining momentum, and the labour market is improving. Mortgage lending has increased by more than a third during the past year. We have witnessed the fastest growth in demand for mortgages for more than six years, but bank lending to businesses is not so promising.

Despite the general surge in lending, the finance available to businesses from banks has been disappointing. The funding for lending scheme has made only a marginal difference to lending to businesses. In November last year, we saw the biggest drop in business lending for more than two years—more than five times the average monthly drop. I accept that the fall is effected disproportionately by a fall in lending to large businesses, but it reveals a worrying approach to business lending, despite the general optimism in other parts of the economy.

I therefore want to focus on one area for the remainder of my remarks. I recognise the importance of small businesses to the growth of jobs and to the well-being of our nation. Small businesses are crucial to our future prosperity, and the financing of those enterprises is a major issue that we need to get right. They employ more than 14 million people and generate more than £1,500 billion for our economy. Problems with access to finance are indicative of broader difficulties in the economy and have serious consequences, as I know from the businesses in my constituency.

Some people argue that there is no problem with bank lending to small businesses and that the present issue is one of a lack of demand. Perhaps some small businesses are not seeking credit to invest and have constraints on their ambitions to grow. Perhaps a number of small businesses have generated cash surpluses that are available for investment, as confidence continues to grow stronger. The Treasury estimates that amount of money at more than £500 billion.

The funding for lending scheme has, however, failed to meet the aspirations that we were promised it would instigate. I welcome the decision of the Governor of the Bank of England to make business lending the sole beneficiary of the scheme, rather than using it for all loans. Plainly, he feels that more needs to be done in this area, but the position seems fairly clear: funding for lending has made a difference for individuals, but not for small businesses. The Federation of Small Business has argued that many small businesses have been affected by a lack of access to financial support during the recovery and have relied on non-bank lenders to keep them afloat, and that simply is not good enough.

I agree with the Government that business investment needs to increase. The Treasury estimates that a 10% increase in business investment in 2012 would have stimulated gross domestic product by a further £12 billion —almost one percentage point in 2012, when I was calling for more lending. Cash balances in the non-financial sector have grown by £104 billion above the pre-crisis level. Work is needed to translate improved business confidence into investment. Indeed, business investment is more than 25% below its pre-crisis peak. That is not a salutary figure, when we rely on small and medium-sized business to provide the growth and to generate the wealth that we need.

Much needs to be done, especially when we recognise our poor productivity figures. One of the great issues over the next five years will be to increase productivity in our businesses. There is an environment of relatively stable prices and improving confidence, but we need to encourage business to invest for growth. Investment for growth means more jobs, high productivity and improved living standards, so small businesses must have priority. The banks have failed to give them that priority, and I call on the Government to do more to ensure that they get it.

--- Later in debate ---

[Mr Gauke]

Gross lending is up, but one thing that will not help small businesses is if our interest rates rise prematurely because we do not have credibility. We have given this country economic credibility and that has helped to keep interest rates lower for longer.

Our system ensures rigorous scrutiny before someone can have a serious position in a bank. Labour’s system could allow someone like Paul Flowers to become chairman of a bank. While fines went back into the banking system in the past, now they go to support military charities and others.

[Mr Binley]

May I make the point that I did argue that business lending from the funding for lending scheme was very low indeed, and that is why Mark Carney took the action he did and why I want to see the Government make more sense of lending to small businesses, because that is where growth and well-being are going to come from?

[Mr Gauke]

I agree with that, and we are focusing the funding for lending scheme on exactly that purpose.