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
PROMOTED VIDEO
ebooks
ebooksA year of political gossip, levity and intrigue from the sharpest pen in Westminster
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

Ashdown Group: Client Services Manager - Relationship Management - London

£30000 - £32000 per annum + benefits : Ashdown Group: A highly successful, int...

Recruitment Genius: Credit Controller / Customer Service

£18000 - £20000 per annum: Recruitment Genius: This rapidly expanding business...

Guru Careers: In-House / Internal Recruiter

£25 - 28k + Bonus: Guru Careers: An In-house / Internal Recruiter is needed to...

Recruitment Genius: Tax Assistant

Negotiable: Recruitment Genius: A Tax Assistant is required to join a leading ...

Day In a Page

Syria crisis: Celebrities call on David Cameron to take more refugees as one young mother tells of torture by Assad regime

Celebrities call on David Cameron to take more Syrian refugees

One young mother tells of torture by Assad regime
The enemy within: People who hear voices in their heads are being encouraged to talk back – with promising results

The enemy within

People who hear voices in their heads are being encouraged to talk back
'In Auschwitz you got used to anything'

'In Auschwitz you got used to anything'

Survivors of the Nazi concentration camp remember its horror, 70 years on
Autumn/winter menswear 2015: The uniforms that make up modern life come to the fore

Autumn/winter menswear 2015

The uniforms that make up modern life come to the fore
'I'm gay, and plan to fight military homophobia'

'I'm gay, and plan to fight military homophobia'

Army general planning to come out
Iraq invasion 2003: The bloody warnings six wise men gave to Tony Blair as he prepared to launch poorly planned campaign

What the six wise men told Tony Blair

Months before the invasion of Iraq in 2003, experts sought to warn the PM about his plans. Here, four of them recall that day
25 years of The Independent on Sunday: The stories, the writers and the changes over the last quarter of a century

25 years of The Independent on Sunday

The stories, the writers and the changes over the last quarter of a century
Homeless Veterans appeal: 'Really caring is a dangerous emotion in this kind of work'

Homeless Veterans appeal

As head of The Soldiers' Charity, Martin Rutledge has to temper compassion with realism. He tells Chris Green how his Army career prepared him
Wu-Tang Clan and The Sexual Objects offer fans a chance to own the only copies of their latest albums

Smash hit go under the hammer

It's nice to pick up a new record once in a while, but the purchasers of two latest releases can go a step further - by buying the only copy
Geeks who rocked the world: Documentary looks back at origins of the computer-games industry

The geeks who rocked the world

A new documentary looks back at origins of the computer-games industry
Belle & Sebastian interview: Stuart Murdoch reveals how the band is taking a new direction

Belle & Sebastian is taking a new direction

Twenty years ago, Belle & Sebastian was a fey indie band from Glasgow. It still is – except today, as prime mover Stuart Murdoch admits, it has a global cult following, from Hollywood to South Korea
America: Land of the free, home of the political dynasty

America: Land of the free, home of the political dynasty

These days in the US things are pretty much stuck where they are, both in politics and society at large, says Rupert Cornwell
A graphic history of US civil rights – in comic book form

A graphic history of US civil rights – in comic book form

A veteran of the Fifties campaigns is inspiring a new generation of activists
Winston Churchill: the enigma of a British hero

Winston Churchill: the enigma of a British hero

A C Benson called him 'a horrid little fellow', George Orwell would have shot him, but what a giant he seems now, says DJ Taylor
Growing mussels: Precious freshwater shellfish are thriving in a unique green project

Growing mussels

Precious freshwater shellfish are thriving in a unique green project