Cameron Said to Tell Lawmakers Bank Lending Can’t Be Forced

Prime Minister David Cameron said there’s a limit to what the government can do to force British banks to lend more to business, two of his lawmakers said, casting doubt on threats to raise tax or limit bonuses.

Lenders can’t be subjected to excessive pressures in a market economy, Cameron told a meeting of his Conservative Party’s members of Parliament in London yesterday, according to the lawmakers who were in the meeting. They declined to be identified because the discussions were private.

The premier’s comments undermine threats by Business Secretary Vince Cable, a member of Cameron’s Liberal Democrat coalition partners, to apply a “more forceful” tax policy against banks if they fail to meet targets for loans to small businesses.

In evidence to a parliamentary panel in London last week, Cable said small and medium-sized enterprises were being discouraged from asking for money. He said he’d written to bank chairmen demanding they set out how their bonus policies encouraged lending to such businesses and held out the threat of new taxes or even restructuring if institutions didn’t deliver.

Cable said that if the banks don’t meet their targets under a February agreement, known as Project Merlin, “we’re absolved from any commitment on our part in terms of restraint on taxation.”

Asked today about Cameron’s reported comments, Cable said, “I’m not sure he would have said that.”

Expected to Observe

“We expect the banks to observe an agreement they’ve entered into with us for lending to small-scale business,” Cable said in an interview with Bloomberg News in Ottawa. “All three of us have said that if the banks don’t honor that agreement, we will use reserve powers, including taxation, and that remains the position,” he said, referring to himself, Cameron, and Chancellor of the Exchequer George Osborne.

Lloyds Banking Group Plc (LLOY), Barclays Plc (BARC), HSBC Holdings Plc (HSBA), Royal Bank of Scotland Group Plc (RBS) and Santander U.K. Plc missed their first set of quarterly lending targets by about 12 percent last month. They agreed in February to make available 76 billion pounds ($124 billion) this year and to “foster more demand” for loans to aid economic recovery.

Cameron said on May 23 he was confident the banks would meet their annual Project Merlin lending targets. “It seems the banks want to make a success of this,” he said. “I’m sure they will do more and do better to get money out of the banks to get our economy growing.”

‘Off the Hook’

“The signs are that the Project Merlin plan is not working,” Ed Balls, the opposition Labour Party’s Treasury spokesman, said the same day. “While the banks are understandably blaming this year’s economic slowdown for a lack of demand for new lending, businesses I talk to are fearful that the Tory-led government is letting the banks off the hook.”

Cable said the government remains resolved to enforce the Merlin Plan. “We reached an agreement with them on certain volumes that they were going to try to meet,” he said. “Some of the banks are doing it, some of them are less successful. We will monitor that agreement carefully, and insist that it is applied.”

To contact the reporter on this story: Robert Hutton in London at rhutton1@bloomberg.net.

To contact the editor responsible for this story: James Hertling at jhertling@bloomberg.net.

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