Britain's banks face new taxes on profits, bonuses and balance sheets if they miss lending targets for small firms, Vince Cable warned yesterday. The Business Secretary told MPs that the Government's Project Merlin deal with the banks was for one year and that if targets were not met then the Government was prepared to impose extra penalties on the sector.
He said: "It will be a question of the Government saying, 'Sorry, this agreement hasn't worked and we are absolved of any commitment on our part in terms of taxation'."
Mr Cable told the House of Commons Business and Skills Committee that he would put extra pressure on the banks to disclose what they were doing to make credit available to small and medium enterprises (SMEs).
The banks have insisted that any shortfall in SME lending is because of lack of demand but Mr Cable said he believed they had "discouraged demand" by charging high prices or showing lack of interest in lending.
He made his comments ahead of disagreements between the big four bank bosses at the Treasury Committee.
Mr Cable has written to the big banks demanding that they publish the incentives for their chief executives and senior managers to increase lending to SMEs under the Merlin deal. When the agreement was announced in February, the Chancellor said chief executives' pay would be linked to SME loans.
Mr Cable also said he wanted all the banks to publish their figures for SME lending and to tell customers why they had been turned down for loans so they could appeal. He will also publish two new surveys ,starting next week, to scrutinise how the banks are dealing with customers and which parts of the country face shortages of credit.
First-quarter lending figures for Project Merlin showed SME loans were about £2bn short of the target. SMEs were a crucial part of the deal because they account for more than half the economy and rely on bank loans more than big companies.
Mr Cable said Lloyds Banking Group and Santander had hit their SME targets. He said the Government still had the option to order Royal Bank of Scotland, the state-owned biggest SME bank, to lend more.
A grilling by the Treasury Committee exposed splits between RBS, HSBC, Lloyds and Barclays over recommendations in the Government's Independent Commission on Banking.
Douglas Flint, HSBC's chairman, said he agreed with the ICB that retail and investment banks under the same roof should be ringfenced. But Stephen Hester, RBS's chief executive, argued that the arrangement threatened "moral hazard" by implying Government backing for retail banks.
He said the "most egregious" mistakes in the crisis were made by domestic retail banks such as Northern Rock and HBOS and not international investment banks. Any ringfence would have to severely restrict a retail bank's activities so it did not branch out into risky areas, he said.
Antonio Horta-Osorio, Lloyds' chief executive, said he thought there was a Government subsidy of investment banks that were part of universal banks with implicit government backing. However, Bob Diamond, Barclays' chief executive, said Barclays Capital was not subsidised by retail deposits. Any guarantee was inferred by investors but "this is not a guarantee given by government", he said.
Asked about the ICB's claim last month that taxpayers were providing a £10bn subsidy that is indirectly financing bankers' bonuses, Mr Hester admitted there could have been some "leakage" from taxpayer support into the bonus pool.Reuse content