FSB: More competition needed in the banking sector to avoid a double-dip recession

The Government must encourage more competition in the banking sector if the UK is to fully recover from recession, said the Federation of Small Businesses (FSB) in its response to the consultation ‘Financing a private sector recovery’, which closes today.

A decade ago, the Cruickshank Report found that the four main UK banks held 83 per cent of the banking market to small businesses. It is vital the Government looks at new ways to change behaviour in the credit market for small firms, as the economy cannot return to business as usual with current lending conditions, said the FSB. This is likely to be a hot topic as business organisations and Ministers rub shoulders during Party Conferences season.

Over 40 per cent of small businesses use a bank loan, overdraft, leasing or factoring for major credit purposes. And those firms which do use the banks as their main source of finance are being penalised by high interest rates at a time when the base rate is at an all time low.

The FSB is urging the Government to:

. Refrain from selling its shareholdings in nationalised and capitalised banks to other banks
. Promote Financial Intermediaries to viable small businesses unable to access finance
. Introduce a series of Regional Capital Markets and Community Investment Trusts
. Create a Post Bank: turn the Post Office into either a solely state owned bank or as mutual or trustee bank for small firms by utilising the Post Office Network.

The FSB firmly believes that such radical moves will not only help small businesses in accessing credit for start-up needs and growth requirements, but it will help provide stability in the event of future limitations of credit through the banks.

However, the FSB is concerned that the Government has not fully considered international comparisons. Credit unions play a major role in financing for small businesses in the USA as they provide a local link for firms looking for finance and Regional Stock Exchanges currently operate in a number of EU countries.

John Walker, National Chairman, Federation of Small Businesses, said:

“During the recession the FSB has actively sought to promote lending to small businesses, be that through the banks or Government backed schemes such as the Enterprise Finance Guarantee. But despite this help, firms are still facing an uphill struggle.

“Demand for finance is at its highest as the economy enters recovery – something which the UK economy is tentatively moving through. If the Government truly believes that the private sector is going to help avoid a double-dip recession, it needs to consider alternative sources of finance.

“Small firms don’t have a huge amount of scope in accessing finance, unlike larger businesses. More competition in the sector will mean greater competitiveness in terms of the cost and the services provided and give access to the type of finance which large businesses are able to tap into.”

ENDS

Notes to Editors

1. The FSB is the UK’s leading business organisation with over 213,000 members. It exists to protect and promote the interests of the self-employed, and all those who run their own business. More information is available at www.fsb.org.uk

2. The FSB envisages that Regional Capital Hubs would be similar to Venture Capital Trusts, but on a local geographical basis.

3. For the full consultation response visit www.fsb.org.uk

Media contacts

Stephen Alambritis: 020 7592 8112/ 07788 422155
Sara Lee: 020 7592 8113/ 07595 067068 sara.lee@fsb.org.uk
Prue Watson: 07825 125695 prue.watson@fsb.org.uk

For regional FSB contacts please go to www.fsb.org.uk/regions