Opinion

Would you credit it? The banks are given yet another chance to do their job

For the last two years, the UK government has tried a number of ways to get banks to lend to small businesses, none of them effective. Despite the lovefest between Chancellor George Osborne and the banks at its launch, Project Merlin has proved to be an embarrassing failure so it’s not surprising the government should be adopting a new scheme to replace it .

Whether The Funding for Lending scheme will prove to be any more effective than Project Merlin remains to be seen but I have my doubts. The experience of Project Merlin shows all too clearly that it may have been a wizard scheme but only for the banks.

Talking about the new scheme, Osborne said: “The Treasury and the Bank of England are taking coordinated action to inject new confidence into our financial system and support the flow of credit to where it is needed in the real economy – showing that we are not powerless to act in the face of the Eurozone debt storm.”

It’s not just the “eurozone debt storm” that’s causing the problem, of course, despite what Osborne says, it’s also the state of the UK economy and a lot of the problems here have been self-inflicted.

And however he dresses it up, the scheme still has a potentially fatal flaw in that it relies on the banks to deliver it. Successive governments have attempted to encourage banks to modify their behaviour to try and help improve credit for business and all to no avail. Quite why they believe they can get banks to behave more like banks by giving them incentives and rewards to do so despite all evidence to the contrary is something only the government can answer.

Anyway, whatever the behaviour of the banks, even if they take up the cause of the Funding For Lending scheme with the enthusiasm of the most ardent zealot, have we reached the point where it doesn’t matter? Businesses may well have been inclined to go for more credit two years ago when the economy was still growing and people on the street were still fairly confident about their prospects, but after such a prolonged period of recession and flat growth (with no sign of any improvement in the short to medium term), how many business owners are going to be inclined to take a punt on growth for their business?

In comedy, timing is everything, but the same applies to many other things, including economics. Remember when they used to say someone was “laughing all the way to the bank”? Not any more. Nowadays, they’re more likely to be crying. In fact, the only people laughing throughout this whole period of economic depression are already in the bank. There are times when we might be forgiven for wondering if the government and, by extension, businesses and people on the street are all playing straightman to the banks. It certainly feels like the joke is on us.

This was first published in July 2012

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