It’s seven years after the financial crisis and the banking industry is still in receipt of state support – support that will be available for two more years, and perhaps for longer.
The Treasury and the Bank of England have decided to extend their Funding for Lending Scheme (FLS), which supplies banks with cheap money with the aim of keeping the supply of credit flowing.
What ought, in theory, to be the scheme’s final outing will be very specifically targeted at lending to small and medium-sized enterprises (SMEs). This is a sector which is still struggling to obtain the funding it needs at a time when lending to other sectors has largely recovered.
The Bank says that things are improving, and its figures bear that out. But not quickly, and the growth in small business lending pales by comparison to the growth in consumer lending. The expansion of the latter is starting to cause concern, with the Bank’s chief economist, Andy Haldane, fretting about personal loans. He says they’re picking up at a rate of knots.
Britain has long nursed an addiction to the drug of debt that it’s never really addressed and the growth in unsecured lending is an indication of a return to bad habits. Given that Mr Haldane and his colleagues are engaged in the unenviable task of walking an economic tightrope, it’s no wonder that he’s getting twitchy.
But consumers are not, as yet, shooting up with the sort of wild abandon they exhibited in the run-up to the crisis. And, as Investec’s Philip Shaw points out, it wasn’t so long ago that we were still talking about the need to make more credit available.
SMEs present an entirely different challenge, and perhaps we should be concerned that the Bank still feels that FLS is necessary, even though the cheap money taps are due to be gradually turned off over the next two years.
The proportion of loans to SMEs being refused by banks remains high, and while alternatives to traditional lenders have been growing, fuelled by the internet, their impact has clearly been insufficient.
Despite their protestations to the contrary, banks appear far more willing to lend to individuals than to businesses, to the economy’s detriment. FLS treats the symptom, but the Bank and the Treasury would to well to consider the cause, at least if they don’t want to be in the position of announcing yet another extension in two years’ time.
Dark days ahead for BHP – and for its shareholders
These are dark days for BHP Billiton, but nothing like as dark as they are for the Brazilians caught up in the Samarco mine disaster. This horrible event might not quite be BHP’s equivalent of BP’s Deepwater Horizon oil spill, but the costs are mounting. The Brazilian government has filed a $5.2bn (£3.5bn) lawsuit as a starter, and the shares took the hint, plunging to seven-year lows during the trading day.
So far the company has set up a fund to help those affected, but said little in terms of how much it might put into it. But it could hardly have come at a worse time, financially. The mining industry generally is suffering from low commodity prices, and earlier this year I questioned whether its generous dividend was sustainable even before the Brazilian dam disaster.
The priority now should be on fixing things. Shareholders’ expectations already have been. Fixed, that is, although they’ll have to wait until the new year for the company to bow to the inevitable and cut its pay out. Doing so should give it the financial flexibility and breathing room required to clear up its mess. Which brings us neatly back to BP. The Deepwater Horizon disaster in the US cost that company many times $5.2bn, in part because, in some cases, it chose to fight and lost, rather than settling quickly.
Different country, different situation, but BHP would still be advised to study it closely if it is at all concerned about ensuring that the mud from that terrible slide doesn’t stick to and stain its image for years to come.
There’s no way to sweeten the blow: sin taxes work
Obesity is a taxing issue for society at large, and the NHS in particular. Hence the suggestion from a committee of MPs that the Government consider a tax on sugary soft drinks.
You can almost see the critics girding their loins in response: “It’s the nanny state again! The health fascists just want to stop you having the occasional treat ...” Poppycock. So called “sin taxes” may not be much loved (what tax is?) but they are an accepted part of the fiscal landscape. And they have previously played an important role in reducing consumption of a similarly damaging product: tobacco. The tax on drinks containing alcohol helps to offset some of the high social cost of that particular drug. So why not on drinks containing lots of sugar?
The revenues raised ought to go some way towards reducing the spiralling costs to the NHS of an obesity epidemic. Such a measure has already been trialled in Mexico – whose problems with obesity are even worse than ours – and it has slowed consumption in addition to raising some useful revenue. The Treasury ought to welcome that. Sadly, it appears that Britain’s ministers are rather less able than their Mexican counterparts to resist the persuasive power of the industry’s well-funded lobbyists.
Join our new commenting forum
Join thought-provoking conversations, follow other Independent readers and see their replies