George Osborne's '£1bn boost' for firms has lent out only £5m
Small print reveals the truth behind the Business Finance Partnership
A scheme drawn up by George Osborne to channel £1.1bn in loan capital to businesses, unveiled to great fanfare in November 2011, has distributed just £5m.
In the Autumn Statement of 2011 the Chancellor announced the establishment of a Business Finance Partnership, a public-private co-investment fund which would supposedly result in some £1.1bn of funds being distributed to middle-sized firms struggling in the credit squeeze.
The plan was for the Government to put up half of the cash in the funds, with the balance coming from pension funds and insurance companies.
The theory was that the state support for the fund would encourage private institutions to come forward with loan capital.
In his Autumn Statement speech Mr Osborne boasted that this scheme, part of a wider programme of what he termed “credit easing”, would help to transform the lending landscape for businesses and enable them to bypass the large banks. “No government has attempted anything as ambitious as this before,” he said.
But the Treasury’s Annual Report and Accounts for the 2012/13 financial year, published this week, reveal that just £5m in loan capital had been distributed under the BFP by March of this year.
When asked why the outlay under the scheme had been so small to date the Treasury said that the BFP had only just become fully active, following an extensive preparation period.
The finance ministry also pointed to the estimates of the Office for Budget Responsibility in March that outflows of loans under the scheme would shoot up to £500m in the present financial year, with a further £400m lent in 2014-15. “We think we’re on track,” insisted a Treasury source.
But the meagre distributions under a scheme unveiled some 20 months ago are nevertheless likely to lead to suspicions that the scheme is the latest in a catalogue of Treasury business lending scheme flops.
The Bank of England statistics this week showed that net business lending fell by £4.5bn in the three months to May.
Lending to the business sector has been negative since the 2008-09 financial crisis, despite a host of government schemes. Small businesses have been especially hard hit by the failure of the banks to lend.
A Treasury spokesperson told The Independent: “Government is committed to diversifying the market so that alternative sources of finance are available to businesses. We expect to update on the progress of the Business Finance Partnership scheme in the months ahead.”
Last December the Treasury announced that five BFP funds were open, and that they would be run by Alcentra Limited, Ares Management Limited, Haymarket Financial, M&G Investment Management and Pricoa Capital. None responded to requests from The Independent to comment on how much interest they had had from investors.
In November 2011 the Chancellor said the BFP would be aimed at Britain’s middle-sized companies, which he described as a sector that had been “neglected for too long”.
Mr Osborne added: “It will give these mid-cap companies a new source of investment outside of traditional banks.”
Long history of failed attempts to boost lending
George Osborne has spent an inordinate chunk of his time in office examining ways to increase the flow of lending to businesses, but with little success.
First, in 2011 there was Project Merlin under which the big banks agreed to lend £190bn to UK firms in exchange for being allowed to pay large bonuses to their employees. The problem was that these were gross, not net, lending targets. By making loans available to some firms and taking credit facilities away from others, banks could hit their quotas while actually shrinking their overall loan books. That is precisely what happened. Net lending to business fell in every month of 2011.
The following year the Treasury set up the National Loan Guarantee Scheme. It was supposed to encourage banks to lend by guaranteeing £20bn of their wholesale borrowing over two years under the condition they passed the money to small businesses. Treasury accounts reveal just £2.9bn in guarantees were made under the scheme.
Last summer, the Bank of England established the Funding for Lending Scheme (FLS). This offers banks cheap credit in return for them lending to small firms and households. It has boosted the supply of loans to mortgage borrowers, but businesses have seen little benefit. Participating lenders had drawn down £16.5bn under the scheme by the end of March, while also shrinking their aggregate stock of lending by £1.8bn. In April the Bank announced that the FLS incentives for small business lending would be sharpened.
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