New competition watchdog set to investigate small business lending

Regulator's first job will be full-scale inquiry into banks amid fall in funding to SMEs

The £170bn small business lending market is to be the first major investigation of the new competition regulator, the Competition and Markets Authority.

The Office of Fair Trading began a study of the sector last year which is understood to have concluded that a full-scale inquiry is required by the CMA, which is taking over as from the Competition Commision and the OFT next month. The announcement could come as soon as today or early next week.

It comes against a background of huge controversy. The Business Secretary, Vince Cable, last night described the failure of the government-backed Funding for Lending Scheme to get finance to small firms as "utterly perverse". Figures from the Bank of England showed that lending to businesses through the scheme fell by £1.3bn between the second and fourth quarters of last year at the same time as a surge in mortgage lending risked fuelling what Mr Cable described as "a house price boom in London and the South-east".

"I am confident that refocusing the Funding for Lending Scheme on to business lending, and the measures we are taking via increased competition and business bank funding will bear fruit," he told the annual Mansion House Trade and Industry dinner.

The Treasury Select Committee has also launched an investigation of its own and has called for evidence to be submitted from small businesses.

Banks have been braced for a move from the CMA for some time now. The OFT's study has already uncovered instances where small firms were ordered to take out current accounts if they wanted loans, in clear breach of promises given by the industry in 2002. Royal Bank of Scotland and Lloyds account for a combined 50 per cent of small business accounts.

The OFT gave nine banks in the market two weeks to submit material on how they were meeting their obligations, plus on any training given to staff, and said it was considering enforcement action.

Meanwhile, the Financial Conduct Authority has launched an investigation into Royal Bank of Scotland's Global Reconstruction Group. GRG was accused of forcing viable businesses into bankruptcy to turn a profit for the bank in an incendiary report penned by the government adviser Lawrence Tomlinson, "entrepreneur in residence" in Mr Cable's department.

RBS's own report, written by the former Bank of England deputy governor, Sir Andrew Large, found widespread failings.

Banks are already in the throes of paying hundreds of millions of pounds in compensation to firms that were sold "interest rate" swap products – a type of derivative– which left many facing huge bills when interest rates unexpectedly fell sharply as a result of the financial crisis.

A spokesman for the OFT yesterday declined to comment on the report's publication, saying that the regulator had given "no update" since December.

Start your day with The Independent, sign up for daily news emails
News
ebooksAn unforgettable anthology of contemporary reportage
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Digital Optimisation Executive - Marketing

£30000 - £35000 per annum: Recruitment Genius: The UK's fastest growing, multi...

Recruitment Genius: Financial Reporting Manager

£70000 - £90000 per annum: Recruitment Genius: A Financial Reporting Manager i...

Recruitment Genius: Payments Operations Assistant

£23000 - £25000 per annum: Recruitment Genius: They win lots of awards for the...

Recruitment Genius: Telephone Debt Negotiator

£13500 - £20000 per annum: Recruitment Genius: This nationwide enforcement com...

Day In a Page

Syria civil war: Meet the military commander who says his soldiers will not rest until every inch of their war torn country is free of Islamist 'terrorists'

‘We won’t stop until Syria is back to normal’

Near the front lines with Islamist-controlled towns where Assad’s troops were besieged just last month, Robert Fisk meets a commander confidently preparing his soldiers for battle
The inside story of how Bill Clinton built a $2bn global foundation may undermine Hillary's chances

The inside story of how Bill Clinton built a $2bn global foundation...

... and how it may undermine Hillary's chances in 2016
12 best olive oils

Extra-virgin, cold-press, early-harvest, ultra-premium: 12 best olive oils

Choosing an olive oil is a surprising minefield. Save yourself the hassle with our handy guide
Rafa Benitez Real Madrid unveiling: New manager full of emotion at Bernabeu homecoming

Benitez full of emotion at Bernabeu homecoming

There were tears in the former Liverpool manager’s eyes as he was unveiled as Real Madrid coach. But the Spaniard knows he must make tough decisions if he is to succeed
Sepp Blatter resignation: The beginning of Fifa's long road to reform?

Does Blatter's departure mean Fifa will automatically clean up its act?

Don't bet on it, says Tom Peck
Charles Kennedy: The baby of the House who grew into a Lib Dem giant

The baby of the House who grew into a Lib Dem giant

Charles Kennedy was consistently a man of the centre-left, dedicated to social justice, but was also a champion of liberty and an opponent of the nanny-state, says Baroness Williams
Syria civil war: The harrowing testament of a five-year-old victim of this endless conflict

The harrowing testament of a five-year-old victim of Syria's endless civil war

Sahar Qanbar lost her mother and brother as civilians and government soldiers fought side by side after being surrounded by brutal Islamist fighters. Robert Fisk visited her
The future of songwriting: How streaming is changing everything we know about making music

The future of songwriting

How streaming is changing everything we know about making music
William Shemin and Henry Johnson: Jewish and black soldiers receive World War I Medal of Honor amid claims of discrimination

Recognition at long last

Jewish and black soldiers who fought in WWI finally receive medals after claims of discrimination
Beating obesity: The new pacemaker which helps over-eaters

Beating obesity

The new pacemaker which helps over-eaters
9 best women's festival waterproofs

Ready for rain: 9 best women's festival waterproofs

These are the macs to keep your denim dry and your hair frizz-free(ish)
Cycling World Hour Record: Nervous Sir Bradley Wiggins ready for pain as he prepares to go distance

Wiggins worried

Nervous Sir Bradley ready for pain as he prepares to attempt cycling's World Hour Record
Liverpool close in on Milner signing

Liverpool close in on Milner signing

Reds baulk at Christian Benteke £32.5m release clause
On your feet! Spending at least two hours a day standing reduces the risk of heart attacks, cancer and diabetes, according to new research

On your feet!

Spending half the day standing 'reduces risk of heart attacks and cancer'
With scores of surgeries closing, what hope is there for the David Cameron's promise of 5,000 more GPs and a 24/7 NHS?

The big NHS question

Why are there so few new GPs when so many want to study medicine?