Banking: Lending

Lord Newby Excerpts

Tuesday 12th November 2013 Lords Chamber

[Lord Barnett]

To ask Her Majesty’s Government what steps they will take to encourage banks to prioritise their lending to the manufacturing sector compared to the property sector.

[Lord Newby (LD)]

My Lords, the Government are committed to improving the flow of credit to all businesses, including those in the manufacturing sector. The Funding for Lending scheme has contributed to an improvement in the bank funding environment and banks are now passing this on to the real economy, including to small businesses. The Business Bank and the Business Finance Partnership are developing alternative sources of finance for smaller businesses.

[Lord Barnett(Lab)]

That is a very different story from the one given by the chief executive of RBS, who, as the noble Lord will know, has told us that the bank is working very closely with the Treasury—by which he means Treasury officials. RBS has now set up an internal bad bank, while the Chancellor, whom I assume the officials talk to occasionally, has refused to set up a bad bank. Between them, they have found £38 billion of high-risk assets which they have decided will go into the bad bank. They have also said that they propose to finish the rest after writing off £4.5 billion by 2016. For those who owe that money, there is now an incentive to wait until the very end, which will mean the bank having to write off even more. Is that something that the officials, with the Chancellor’s consent, have agreed to?

[Lord Newby]

My Lords, as the noble Lord knows, there was a review about whether there should be a formal good bank/bad bank split of RBS. The Government decided that the cost and disruption of doing this was not justified. However, as the noble Lord says, the bank has itself decided to make an internal split, enabling it to have a greater focus on lending and on dealing in a more orderly way with many loans which will not be repaid or will be only partially repaid. Many of these are related to the property sector.

[Lord Sharkey (LD)]

My Lords, in March it was noted that lending to SMEs had shrunk by 25% in real terms since 2009 and it has continued to decline since then. The Business Bank is intended to address the problem and BIS forecasts that the first SME loan portfolio guarantees will be in place by the end of this year. Can the Minister update the House on progress?

[Lord Newby]

My Lords, in respect of SME lending more generally, gross lending is now rising. The picture is clouded by the fact that a lot of SMEs are still paying back loans, so the net position is not as positive, but net lending is down by a much lower amount. As far as lending to SMEs as a whole is concerned, the picture is improving. The Business Bank was launched on 17 October and it aims to support economic growth by bringing together public and private sector funds to improve financial markets for SMEs. Very recently it announced its first commitment of £45 million from the initial £300 million investment programme.

[Lord Davies of Oldham (Lab)]

My Lords, does the Minister think that his answers thus far will have given any satisfaction to those vocal critics of the low level of lending by banks to business, who include the director-general of the British Chambers of Commerce, the International Monetary Fund and the Business Secretary, Vince Cable?

[Lord Newby]

My Lords, it is important to look at what is happening in the real world. The CBI’s SME trends survey, published yesterday, showed that SME business optimism was rising at the fastest rate since the survey began some 25 years ago. Among SMEs, output grew for the fourth quarter and is expected to grow more rapidly going into 2014. More generally, vacancies—the best indication of growing or falling demand for labour—are rising at the sharpest rate for more than six years.

[Lord Barnett]

My Lords, the noble Lord forgot to answer my question. Did the Chancellor agree with his officials in setting up the internal bad bank?

[Lord Newby]

My Lords, the decision on setting up the bad bank was, primarily, for the management of RBS. The Treasury and UKFI are obviously in regular contact with RBS.

[Lord Forsyth of Drumlean (Con)]

Does my noble friend not agree that one of the reasons that the banks have had difficulty in providing loans for small business is the disastrous state of their balance sheets, which was the responsibility of the ridiculous monetary policy followed by the previous Government?

[Lord Newby]

My Lords, that was clearly a major contributory factor. However, I refer noble Lords to the review undertaken by Sir Andrew Large for RBS, which found that the bank had failed to meet its own lending standards, had risk-averse staff and took longer to process applications than other banks, and that its treatment of customers in financial distress had led to major negative perceptions of the bank. The bank is now, at long last, moving to tackle many of those issues, but the failures in the way that RBS ran its business were a major contributory factor to its failure in recent years to lend to SMEs the amounts it set itself in its target.

[Lord Lea of Crondall (Lab)]

My Lords, does the Minister not accept that his characterisation is grossly inaccurate, and that in the past few years the huge fall in output in the western capitalist economies—I use that term advisedly—was due to the way in which Lehman Brothers and others at that time were able to cause that financial bubble and cause output to fall 10% below trend right across the western world? Simply to say that it was the fault of the Labour Government is ludicrous.

[Lord Newby]

My Lords, I may be mistaken but I do not think that I said it was the fault of the Labour Government.

[Noble Lords]

Oh!

[Lord Newby]

I attempt to take responsibility for things that I say at the Dispatch Box; it is beyond the scope of my responsibilities to take responsibility for the views of every other noble Lord.

[Lord Dobbs (Con)]

I congratulate my noble friend on accepting some responsibility at the Dispatch Box. Is that not far better than, in the case of Members opposite, apparently accepting no responsibility whatever for anything they ever managed to do in government?

--- Later in debate ---

[Lord Newby]

That is extremely kind but perhaps I may, as a final word, remind noble Lords—given the subject of the Question—not only that manufacturing output is up but that the Government have adopted a very wide range of proactive measures to promote manufacturing, including increasing the investment allowance to £250,000, supporting the Advanced Manufacturing Supply Chain Initiative, supporting high-value engineering and vastly increasing the apprenticeships scheme, including apprentices in manufacturing companies.