Speaking to the Treasury Select Committee today, Business Secretary Vince Cable has warned banks over lending, threatening higher taxes.
The business secretary told MPs that the amount of lending to small and medium-sized enterprises (SMEs) was a “serious problem” and has reminded banks of their targets, set out in the Project Merlin agreement.
Under the agreement, Barclays, Royal Bank of Scotland, Lloyds, HSBC and Santander all committed to lend £190 billion to all businesses this year.
However, figures published last month by the Bank of England revealed that the “big five” banks loaned £16.8 billion to SMEs in the first quarter – around £2 billion short of the £19 billion target.
Of this figure, around £76 billion of credit should be made available to SMEs this year – equating to around £19 billion every quarter.
The Project Merlin agreement includes a clause that if banks do not meet lending commitments, chief executives will not be able to receive their maximum pay and bonus.
Later today, the chief executives of the big banks will give evidence to the Committee.
“The Chancellor and Prime Minister have made it clear that if we don’t get results, they have said we should take further action with tax on banks,” Mr Cable said.
He added: “We believe there is an issue with the supply and cost of finance and it is inhibiting recovery. Certainly, if it’s not dealt with, it will inhibit recovery as we move into more rapid growth.”
However, he did highlight that Lloyds has been meeting its target, suggesting: “Some banks are trying harder than others.”