Clark is Financial Secretary to the Treasury and MP for Tunbridge
Wells. Most Tuesdays he will be writing this new 'Letter from a Treasury
Minister' for ConservativeHome readers. This – his second Letter – focuses on small businesses.
Follow Greg on Twitter.
The Financial Secretary to the Treasury is responsible for a
wide range of issues, but the biggest is the banking system. It was, therefore,
very appropriate that the first meetings I had in my new role was with representatives
of small businesses. Our economy depends on the success of small and medium-sized
enterprises (SMEs), which in turn depend on the financial services that banks
Bank lending – through loans and overdrafts – is the main
source of external finance for SMEs, so the lending behaviour of banks is
critical. The good news is that lending by UK banks to SMEs rose by 13%
last year, and interest rates have been held down since August by the new Bank
of England/Treasury Funding for Lending scheme – Barclays report that the cost
of borrowing for SME customers is the lowest it has been for 25 years.
And yet I know from my own constituency that many small firms
feel frustrated with their banks, especially when loan applications are turned
down. Of course, it has always been the case that some loan applications are
refused. But this can be hard for applicants to accept when they’ve had a long
relationship with their bank and are still turned down. The fact that switching
banks can be difficult – and that there may not be much of a choice anyway –
only serves to heighten the sense of frustration.
So what more can we do about it?
Firstly, I think we need more competition and choice in
banking. Though not exactly a diverse sector before the credit crunch, there
was a further contraction as a result of the forced mergers that took place
under the last government, at the height of the banking crisis. Now, the time
has come to rebuild diversity. That’s why we’re giving a new statutory duty to
the financial service regulators to promote competition. There should be more
new entrants to the sector, licensed without undue delay and with no more
regulatory hurdles than are necessary. Unjustified barriers to the expansion of
smaller challengers to the big banks should be torn down. And, whether large or
small, it should be much easier to switch accounts from one bank to another.
Andrea Leadsom MP, a leading member of the Treasury select committee, is a
dedicated campaigner on this issue and, together with my Treasury colleague
Sajid Javid, I am meeting with her and other experts to map out a way forward.
Secondly, small businesses need to be able to count on a meaningful
relationship with their banks. Credit-scoring has its place, but a curt and
computerised rejection can leave businesses in the dark as to what the problem
is. I think good customers should receive proper guidance on what they can do
to improve their future prospects – something that was taken for granted in the
days when a refusal would at least come in a conversation with a local bank manager
who knew their businesses well. Furthermore, I’d like to see many more bank
managers actively participating in their local Chambers of Commerce and other
business networks – as used to be the case.
Thirdly, business customers should be able to seek a second
opinion. What if the assessor made a mistake? What if it was a close call? If
your ability to take your business elsewhere is constrained, then it is
especially important that your bank gives you every opportunity for a fair
In fact, there is a scheme to do just that, but it remains
one of the best kept secrets in the industry. The Banking Taskforce Appeals
Process, launched last year by the British Bankers Association allows any
business with a turnover of less than £25 million to have a loan application
which has been declined to be reviewed by someone unconnected with the original
decision. What’s more, each of these second opinions is delivered within thirty
days. In its first year of operation 40% of rejected applications appealed
through the service were overturned.
The Appeals Process is overseen by an Independent Reviewer,
Russel Griggs, a former chair of the CBI’s SME Council. I met Mr Griggs earlier
this month to discuss his informative
report on the Appeals Process and he confirmed my view that the system is a
good one. Yet he told me that of the 114,000 loan and overdraft applications
that were declined in 2011/12, only 2,000 were appealed. The Appeals Process
needs to be better promoted so that any small firm who thinks they have hit a
brick wall with their bank has somewhere to turn.
Finally, I think that it’s worth remembering that SMEs have
played a vital role in building up the resilience of the British economy. When
the big banks had to fall back on the state to bail them out, small business
carried on providing jobs and paying their taxes. Now, it is the duty of both
government and the banks to provide the support that SMEs need to build the
> Last week Greg wrote about the appointment of Mark Carney as the new Governor of the Bank of England