Banking in Scotland

David Mowat Excerpts

Thursday 14th October 2010 Westminster Hall

[Mr Hoban]

I want to respond to the comment made by my hon. Friend the Member for Argyll and Bute about the Post Office bank. Part of the coalition agreement was that we would consider the case for a Post Office bank. He will know that the Under-Secretary of State for Business, Innovation and Skills, my hon. Friend the Member for Kingston and Surbiton (Mr Davey), has responsibility for the Post Office. We are looking through the options at the moment and thinking about how the Post Office can expand the scope of the financial services that it offers across the counter. That would be of benefit to many—particularly those in rural areas, where the nearest post office may be closer than the nearest bank.

I shall move on to address the issue of lending to small and medium-sized businesses, which has cropped up in a number of contributions. Banks can and do play a critical role in providing finance for new start-ups, growing enterprises and our largest corporations. A thriving banking sector is therefore critical for our economic recovery. Ensuring the flow of credit to small and medium-sized enterprises is particularly essential to supporting growth. In Scotland alone, SMEs account for more than 1 million jobs, so they are an important part of the economy in not just Scotland, but every constituency and part of the nation.

The importance of getting credit flowing to SMEs meant that the Chancellor made a series of announcements in the June Budget. There was the extension of £200 million to the enterprise finance guarantee scheme, which will benefit 2,000 additional small businesses across the UK and bring the lending covered by the EFG up to £700 million. In addition, an enterprise capital fund to support small businesses with high growth potential was announced, combining both Government and private sector funding. In July, we also published a Green Paper on financing a private sector recovery—consultation on that has closed—which considered a broad range of finance options for businesses of different sizes, including bank lending. We will respond formally to that in the next few weeks.

The Select Committee’s report expressed concern about the availability of lending and whether Scottish banks are truly open for business. Again, those concerns have been mentioned in the debate. Today the banks have published, through the British Bankers Association taskforce, a series of measures to help improve customer relationships, promote better access to finance and, crucially, provide better information on the availability of and demand for credit. That point was raised by the Chair of the Select Committee and by my hon. Friend the Member for Argyll and Bute.

One of the things that prompted the proposal to bring together better information is this debate. When I talk to banks’ chief executive officers, as I do regularly, they say that they have enough capacity to lend to small businesses, but that the demand is not there. When we talk to small businesses—hon. Members have raised various examples from their own constituencies—they say that they do not believe the banks are interested in listening. Part of that might be a pricing issue. The survey, which will be based on information supplied by the banks but prepared independently of the banks, will address those issues and raise the quality of information. It will enable us to scrutinise the banks more closely about their lending practices, including the rate at which they are lending.

[David Mowat (Warrington South) (Con)]

This discussion has always struck me as a bit odd, because banks need to lend to make money. I understand the things that the Government are doing—the two things that the Minister mentioned—but are there not two real issues here? First, it is not that UK banks are lending less; it is simply that a lot of foreign banks have left the market and UK banks have not filled that gap.

Secondly, the banks’ real issue is the requirement that has been placed on them to rebuild their balance sheets and to change their credit ratios in the run-up to Basel 3. They have less money because the Government are effectively telling them to do two contradictory things: to lend more; and to rebuild their balance sheets and have better capital ratios.