Vince Cable. Photo credit: Steve Punter

“Very green” paper set to punish selfishness and reward lending to small businesses

Having last week lambasted banks for “ripping off” their customers, Business secretary Vince Cable has now launched a business finance green paper aimed at increasing bank lending. Under his proposals, private banks could be made to sign up to the same type of agreements placed on the part-nationalised banks, reported Politicshome. The green paper also includes proposals for a raft of financing options, including encouraging venture capital and so-called “business angels” to invest more widely.

“Banks are set to come under renewed pressure,” reported the BBC who quoted Cable as saying that they are “not acting in the national interest”. Cable also suggested dividends and bonuses could be a target as part of a “carrot and stick” approach to boost lending. Introducing his joint consultation paper, entitled ‘Financing A Private Sector Recovery’, Cable said: “If we don’t anticipate and tackle finance barriers now, we could face a big problem in the future.” Chancellor George Osborne added: “Accessing finance continues to be a challenge for many British businesses.” A statement from the British Bankers’ Association claimed that “demand for lending is currently low as businesses are not keen to take on additional borrowing when the economic outcome is uncertain”.

Tracy Corrigan at The Telegraph hit upon the proposal that bank lending may be tied directly to bonuses. “I do not doubt that if you tell bankers they can’t have their bonuses unless they lend lots of money to small businesses, that is exactly what they will do,” she wrote. “I find it harder to figure out why this is a good idea.” Corrigan continued: “It is not true that it is a banker’s job to lend. It is a banker’s job to lend wisely . . . . Look at it another way. Consumer spending boosts growth too. Should we pay bankers more if they issue more credit cards?”

Cable’s paper “fails to match the Liberal Democrat minister’s angry rhetoric – including a fresh attack on bank bonuses – with a firm plan of action,” complained the Financial Times. The newspaper also noted remarks by Cable’s “officials” that the document is “a very green” paper.

“It seems that the coalition’s Business Secretary, Vince Cable, has lost all patience with the banks,” said Jeff Taylor at The Economic Voice. “No wonder the banks are doing everything within their power to buy themselves back out of the government’s pocket. Forcing these banks to lend may mean they end up forking out money to businesses that no-one else will touch. It could also act as a big drag factor on them as they try to grow their way out of public ownership.”

The New Statesman seemed less tortured by the news, reporting, flatly: “These measures . . . are part of a larger effort by the government to increase the availability of capital to private businesses and prevent another financial crisis.”