‘Project Merlin’ bank deal unveiled
Bank lending to small- and medium-sized enterprises will increase by 15% this year, chancellor George Osborne has announced.
The news comes as the culmination of weeks of behind-the-scenes negotiations between the government and the banks.
Shadow chancellor Ed Balls said the talks had come up with “precious little” and called the outcome “pitiful”.
Under the terms of the deal agreed with HSBC, Lloyds, RBS and Barclays, lending to SMEs will increase from £69 billion to £79 billion.
They will provide £1.2 billion of funding for the regional growth fund and an extra £200 million to help finance the Big Society bank.
On bonuses, the executives of RBS and Lloyds will be forced to accept payments in shares and will have to wait until 2013 to convert them into cash.
Pay details of the board and the top five highest-paid executives not on the board will also be required, creating what Mr Osborne called the “toughest and most transparent pay regime of any major financial centre in the world”.
He added: “Banks will lend more money, especially to small businesses, pay more taxes, pay less bonuses, be more transparent about the bonuses they do pay and make a greater contribution to our regional economy and society.
“In return let us create a banking industry that creates jobs for hundreds of thousands of our citizens. Above all, let us ensure that the economic catastrophe which befell this country will never be repeated.”
Mr Balls responded by saying Project Merlin, the name for the secret talks, had turned into the “Wizard of Oz”.
“For the chancellor who talked so tough in opposition and who even yesterday continued to promise much, this is a pitiful outcome and a… climbdown,” he added.
The announcement comes hot on the heels of yesterday’s surprise announcement from No 11 that the Treasury was raiding the City for an extra £800 million.
The phasing-in of its bank levy was abandoned after banks showed greater profitability this year, Mr Osborne said yesterday. The Treasury will receive £2.5 billion from the levy in 2011, instead of the expected £1.7 billion, as a result.
Total bonuses will be lower than last year. Mr Osborne said the City’s pay packages were “completely out of kilter with what the rest of society would regard as either fair or reasonable” but later insisted that “Britain needs to move from retribution to recovery”.
Full proposals for changing the system of financial services regulation will be published next week, the chancellor told MPs.
The Bank of England will be handed powers of prudential regulation, while a new authority will be created “to protect the interests of bank customers”.
