Employer members of the Confederation of British Industry recently warned that economic recovery efforts in the UK could be severely hampered if financial institutions continue to refuse business loans to growing enterprises.
While government officials have focused on recovery efforts through UK exports and a hope that the private sector will take up the slack created by cutting public staff and services, there is a lack of any hard evidence that private business will be able to do so without more working capital made available to them.
CBI’s deputy director-general John Cridland recently told the Observer in an interview that it was still unknown whether private enterprise would be able to secure business loans to fund their re-stocking and expansion efforts.
Cridland made it clear that the role of UK policymakers should be that they don’t inadvertently hobble banks’ lending capacity by enacting strict regulatory measures to withstand any market shock. Cridland added that the CBI is very aware that, due to the number of foreign finance institutions that have fled the UK due to the banking collapse, companies seeking loans will be much more dependent on the remaining British banks.
While Cridland added that the CBI is in no way expressing pessimism about the economic recovery, he did urge banks to provide working captital for businesses in order to foster economic growth.
Business Secretary Vince Cable cautioned that he is considering all UK banking institutions to enter into lending agreements if they persist in refusing to increase availability of funding last week.
Cable also discussed the coalition government’s plans in a recently released green paper, delineating plans to extend the loan targets for banks supported by the government to a program designed to encompass banking institutions that did not require taxpayer bail-outs.
Secretary Cable commented that the government is examining the lending practices of all UK banks, not just those controlled by the government (such as RBS and Lloyds). The government is interested in observing evidence of restraint in all UK banks, he concluded, especially in the areas of bonus pay and dividend payments.