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Economic Growth and Employment

I have given way several times, and I want to make a bit of progress. Instead of reverting to the tired old mantras and doing over the people who work in this country, perhaps the Secretary of State could tell us what he will do to get banks lending to small and medium-sized businesses that are, by his and the Chancellor's own admission, currently being starved of credit. We know that the Project Merlin accord between the banks and the Government failed. The Secretary of State more or less admitted as much when he said:"““Merlin was necessary but it was never going to be sufficient. I don't think any of us pretended it was enough.””" We know that the figures published under Merlin are entirely misleading, because under the agreement between the banks and the Government a gross lending measure was adopted, not the more meaningful net figure used by the Bank of England. The truth is that Project Merlin was really no more than a public relations gimmick designed to get the Government out of a hole when banks' declarations of bonuses were in full flow earlier this year. For real businesses, the failure is real. The Bank of England's ““Trends in Lending”” publication for last month showed the stock of lending to UK businesses contracting overall in the three months to August. The Bank's latest agents' summary, for this month, stated that small businesses were still reporting that credit conditions"““remained tight, and in some cases had become tighter.””" That is supported by the figures released this morning by the British Bankers Association, showing lending by the high street banking groups to non-financial businesses contracting this month. To resolve that problem, the Government first need to change their overall economic strategy, to give businesses the confidence to borrow and grow. The small and medium-sized enterprise finance monitor published last week showed that the main barrier to future borrowing by SMEs was the economic climate, but that the other major barrier was the lending practices of the banks. The Government need to use their influence with the banks, particularly through United Kingdom Financial Investments in the case of the banks in which the state has a stake, to insist that they get money out of the door to responsible businesses that have sound business models but are struggling to access finance. In addition, they must urge those banks to adopt a better lending culture—for example, by ensuring that they have local relationship managers on the ground who get to know the business concerned.