U.K. Business Secretary Vince Cable confirmed that the government is providing 1 billion pounds ($1.6 billion) of backing for a “business bank” to offer long- term financing to small and medium-sized companies.
“We need a new British business bank with a clean balance sheet and an ability to expand lending rapidly to the manufacturers, exporters and high-growth companies that power our economy,” Cable told the annual conference of his Liberal Democrat party in Brighton on England’s south coast today. He said the bank “will apply leverage through guarantees to support up to 10 billion pounds of finance to small and mid- sized business, a significant portion of all the lending currently available.”
Cable has long argued that a lack of funding is stopping businesses from expanding and helping the British economy to grow.
“Our leading banks are often anti-business, especially anti-small business,” Cable said. “They threw traditional relationship banking over the side and sold useless insurance and dodgy derivatives instead.”
The business bank, which will operate on a wholesale basis rather than lending directly, will aim to raise more than 1 billion pounds of private-sector funding, according to details given by Cable’s office. His Business Department is looking for a high-profile figure to lead the bank and intends to have it running within 18 months.
Cable said there was a need for “a demand stimulus” to help fight recession.
“That does not just mean pumping more money into the banks,” he said. “That great Liberal Keynes had exactly the right analysis of the problem we now have -- not enough spending power in the economy. And not only him -- but also the International Monetary Fund, who no one could accuse of financial irresponsibility, and the coalition understands this very well.”
Cable called for “an aggressive program of house building by housing associations and local councils, with government providing guarantees so they can build, in large numbers, now.”
Cable acknowledged yesterday that government efforts to increase lending had struggled. He told Liberal Democrat activists in Brighton that banks are trying to reduce their exposure to risks and are reluctant to lend against commercial property, the main asset of many businesses.
“When I start haranguing them, as I do, the chief executives say: ‘Do you really want us to get back into the same kind of problems we had before?”’ Cable said.
“Public anger at the greed and stupidity in this industry will continue for a long time,” the business secretary said in his speech today. “But I am looking forward to and I want to work with the new generation of sensible bankers to support the real economy.”
The business secretary said the government’s Funding For Lending program, introduced in August, had been more successful in increasing mortgage availability than in helping businesses.
The opposition Labour Party expressed skepticism about Cable’s plan.
“It is crucial that this business bank is more than merely a rebadging of existing schemes, but that it gets credit to profitable firms that can’t access it,” Labour’s business spokesman, Chuka Umunna, said in an e-mailed statement. “It is far from clear whether ministers want to create the kind of institution which is needed.”
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