David Prosser: The battle to get credit to where it is needed

Outlook New figures from the British Bankers' Association yesterday appear to undermine the argument that Britain's banks are holding back the recovery by refusing to lend to business. They show that the five biggest banks have lent £157bn to businesses since February, £15bn more than agreed under the Merlin deal that month. On loans to small and medium enterprises, the story is not so positive, but total lending of £56bn is only £1bn down on where the banks should be in relation to Merlin and there is time to make up the shortfall.

The data makes interesting reading. Earlier this year, when the banks were some way behind their Merlin commitments, they said it was lack of demand to blame rather than lack of supply – that businesses were more interested in deleveraging than taking on new debt. If that dynamic has now changed, it suggests businesses may be more optimistic about the economic outlook than one might expect, though the Bank of England says net lending (advances minus repayments) continues to fall.

Moreover, it is clear – from the correspondence received by the media, the case files of MPs, and the examples given by small-business groups – that not every company looking for finance has been able to find it. Are those lending decisions always justified? Is there a certain type of SME still being starved of credit?

In this context, the Chancellor'sautumn statement, now less than three weeks away, will make interesting reading. George Osborne has promised us a new initiative known as credit easing, under which the Government underwrites loans to businesses that would not otherwise be able to borrow. We do not yet have the terms of that scheme, but the big question is how the risk to the taxpayer of offering credit to businesses turned away by private-sector lenders will be mitigated.