Pre-Budget Statement Business Finance: Inquiry puts banks under the spotlight

DONALD CRUICKSHANK, the former telecommunications regulator and the Government's millennium "bug-buster", is to head a review of small firms' access to finance.

Small business leaders welcomed the announcement as a sign that the Government was acknowledging the importance of the small-business sector to the economy.

Tim Sweeney, the director- general of the British Bankers' Association, said the study would "give banks the opportunity to highlight the many new customer-focused developments in the industry".

Among these developments are initiatives by high street lenders, including NatWest and Barclays, aimed at building relationships on the basis that it is in everybody's interests for firms to prosper.

Banks are also stressing to their customers that lending is not the only source of finance and claim to be pointing them in the direction of other advisers, including "business angels", or individuals who invest in growing businesses.

A spokesman for the Bank of England, which has been monitoring the relations between small businesses and their banks since they hit an all-time low in the early Nineties, said the bank saw the review as providing a chance to show how matters had improved.

Stan Mendham, the chief executive of the Forum of Private Business, also pointed to improvements, but said his organisation welcomed the opportunity to probe deeper into aspects of the relationship between small companies and their banks.

He stressed that the review would need to cover "behaviour and attitudes on both sides".

Mr Cruickshank, a former McKinsey consultant who is also in charge of the Government's initiative to deal with the millennium bug, will determine whether more can be done to build on recent improvements.

The Government accepts that the entry of supermarkets and telephone banking operations has increased competition in the banking sector and says that it sees signs of managers basing lending decisions on more sophisticated risk assessment methods. However, Mr Cruickshank has been asked to investigate issues such as the levels of innovation, competition and efficiency and compare these with international banking standards and consider if there are options for changes in approach.

The review is being presented as a "genuinely open-minded" exercise in which the banks, their customers and potential competitors will be able to participate, and it should be completed within a year.