Following the embarrassingly empty green paper published this week, titled "Financing a private sector recovery" without offering any ideas on how to finance it, Bank of England Governor Mervyn King has launched a blistering attack on Britain's major banks.
Following the embarrassingly empty green paper published this week, titled “Financing a private sector recovery” without offering any ideas on how to finance it, Bank of England Governor Mervyn King has launched a blistering attack on Britain’s major banks. As Rachel Reeves MP said on Left Foot Forward, the coalition green paper was kind to banks but offered absolutely nothing to businesses.
Now King has told the Treasury select committee that claims by banks that corporate lending had declined because of a lack of demand were “not an adequate response” adding that their treatment of business clients was creating a “heart breaking” situation for Britain’s SMEs.
In a further criticism of the banks, he told MPs on the Committee – in the same hearing in which he distanced himself from Nick Clegg’s discredited claims on when he u-turned over the deficit – that it is “a lot harder to build a business than it is to sit in London and trade away”.
It has long been obvious that the lending crisis is risking Britain’s economic recovery. The taxpayers’ estimated £1 trillion bailout was intended to press banks to resume lending to businesses. Instead, many have used it to buttress their capital positions and increase bonus payments by £10 billion since the crisis, according to the BoE.
Even the green paper admitted that this £10bn in extra bonuses since the crisis could have, as the BoE stated in its June Financial Stability Report, sustained £50bn in new lending. Since the 2008 crisis, lending figures have been positive in only three months, and fell in May by £2.3bn.
The banks have consistently claimed that there is no demand, while business groups say they are not applying for loans because they expect to be rejected and interest rates are too high. The result of this stand-off is that the businesses we need to create the growth that will take Britain back to prosperity are being allowed to stagnate.
However, the latest remarks by Governor King blow the banks’ contention that there is no demand completely out of the water. The financial crisis should have led to a rethink on how the UK does business and King has consistently, and rightly, argued that the UK economy should rely less on consumption and public spending and more on manufacturing, investment and exports.
The coalition – although many suspect this is the work of George Osborne rather than Vince Cable – is, as the green paper demonstrated, offering no new ideas on how to increase these economic sectors.
As the Chancellor announced in his first Mansion House speech, the Governor of the BoE will also become the chief economic ‘watchdog’ over the City when the Financial Services Authority falls under the remit of the Bank.
He is proving to be a constructive critic, especially compared with the supposedly independent Office for Budget Responsibility, which is so independent that its skeleton staff is reliant on Treasury media officers and policy officers. One wonders what Osborne’s reaction will be to King’s latest piece of independent thinking.Like this article? Sign up to Left Foot Forward's weekday email for the latest progressive news and comment - and support campaigning journalism by making a donation today.