Will the National Loan Guarantee Scheme be of any greater benefit to Britain’s credit-starved small businesses than last year’s lending targets? Don’t bet the house on it.
The Treasury hopes that the scheme will encourage the banks to compete for a greater share of the small businesses market. But one bank executive I spoke to yesterday said that he did not envisage his firm making any more loans in aggregate to the sector because of the scheme than it otherwise would have. The main benefit of the scheme for him was that it provided some funding insurance for his institution in the event of another crunch in wholesale credit markets.
And despite four months of haggling over the fine print, the Treasury and the banks still seem to be singing from different hymn sheets on what the agreement actually means. A Treasury press officer told me that he expected the banks to offer the cheaper loan terms to existing customers as well as new ones. But when I put this to a bank spokesman, I was told that this scheme would be limited to new borrowers.
When Adam Posen, of the Bank of England’s Monetary Policy Committee, first spoke of something called credit easing last year, he proposed a lending revolution. A new bank would be established with a specific mandate to make loans to small businesses. This would be complemented by a new agency to bundle up these loans and sell them on to investors. Sadly, what the Chancellor unveils today is not revolution, but tinkering.