The Government has warned banks that it is read to intervene if a lack of lending to small businesses continues to threaten the UK’s economic recovery.
Vince Cable, the business secretary published a green paper on financing the private sector’s recovery, in which he advised banks that they could be faced with a tax on profits if they do not promote lending to small businesses and pay-out excessive bonuses and dividends instead.
Both Mr Cable and Mr Osborne have highlighted the importance of small businesses in promoting economic recovery:
“Small and growing businesses are a vital part of the economic recovery. In the past they have been reliant on an over-leveraged banking sector, which has contributed to economic boom and bust.”
The green paper, a document produced by Mr Cable, in conjunction with Chancellor George Osborne, sets out ways to get finance flowing effectively. The document not only details how lending can benefit the economy but also how encouraging equity investment to kickstart securitisation markets. The document also suggests the use of government guarantees, where the government takes on some of the responsibility for the loan.
The paper states that it would prefer a private sector solution to be found, however, it does say:
“The government also, however, stands ready to intervene to prevent downside risks to the economic recovery materialising.”
So with the British Government introducing tougher measures small businesses could be better off if the banks start heeding these warnings and open up their lending. If they don’t this threat issued to banks is likely to become a much deserved reality.