- As expected, the four “Merlin” banks (RBS, HSBC, Lloyds and Barclays) as well as Santander will commit to making £190bn of credit available to businesses this year, up from £179bn in 2010.
- Of that total, the Merlin banks have committed to lending £76bn to small businesses in 2011 – an increase of £10bn in credit available to SMEs in 2010.
- The Bank of England will act as watchdog to ensure loans are being made available to businesses. Among the performance targets used to determine bank CEOs’ bonuses will be whether they are honouring their commitment to provide credit to businesses.
- RBS, HSBC, Lloyds and will report the pay of their five highest-paid executives (below board level).
- Merlin banks will lend at least £200bn to the Big Society Bank, which David Cameron says will provide funding for community projects.
- Merlin banks will provide £1bn of equity capital over three years for small businesses in hard-pressed parts of the UK. This is in addition to the £1.5bn of equity capital they have committed to making available over ten years. The equity capital will be farmed out to private-sector businesses in regions most affected by public-spending cuts.
Commenting on today’s banking statement Business Secretary Vince Cable called the agreement “a good step forward for British business”. He said: “Banks have made a commitment, with independent monitoring, to increase credit to UK firms and especially to small and medium-sized enterprise.”
Cable explained that tougher mandatory disclosure will afford the UK “the most transparent financial regime in the world, while linking executive pay to lending gives businesses a crucial assurance that bank executives have a stake in the real economy”.
But is Project Merlin merely an “academic answer” to small businesses’ funding problems? Is shadow chancellor Ed Balls justified in calling Project Merlin a “pitiful climbdown”?
Outspoken Real Business columnist The City Grump thinks Chancellor George Osborne has fallen short of offering a meaningful funding solution to small businesses: “The only interesting item on the agenda for small companies is that the banks are, for the first time since the days of the original 3i, going to stump up some equity capital. Sadly the amount – a total of £2.5bn spread over three to ten years – is pitiful and, as such, does nothing to address the yawning funding gap for small companies.
“The Chancellor in his next budget really must provide tax incentives to small-company equity investors if we are to have any hope of getting employment and growth going again. Are you listening George?”
Keep checking Real Business for more analysis and opinion about Project Merlin.
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