Small Business Lending Has Gone Down Say MPs

Many smaller firms are still struggling to get finance and Whitehall is not doing enough to raise awareness of the help available it has been warned.

But the critical report by the Commons Public Accounts Committee has been rejected by the Government, which argues credit conditions for small and medium-sized enterprises (SMEs) are improving, and new lending is being provided.

MPs on the influential financial watchdog said that up to 2015 the Government was spending nearly £3bn on schemes to help firms, but departments could not show these were being successful in tackling the market failures they were designed to tackle.

The committee's report said: "Indeed far from encouraging more lending to SMEs, investment has declined."

Margaret Hodge, who chairs the committee, said: "Small and medium-sized enterprises have a vital role to play in driving the UK's economic recovery, but despite Government attempts to encourage lending to SMEs many still struggle to access the finance they need.

Margaret Hodge said schemes were run as a series of ad hoc initiatives

"At the time of our hearing overall lending to SMEs was down. Net lending by banks participating in the Funding for Lending scheme has declined by £2.3bn since the scheme was launched, and the number and value of loans backed by the Enterprise Finance Guarantee fell each year between 2010 and 2013.

"Departments manage their various schemes not as a coherent programme but simply as a series of ad hoc initiatives.

"There is no common understanding about which parts of the SME sector are generating the most growth and where government support would do most good.

"Departments were therefore unable to demonstrate that they are achieving best value for taxpayers' money."

The MPs recommended the establishment of the British Business Bank should be used to oversee and coordinate schemes.

John Allan, chairman of the Federation of Small Businesses, said: "Recent FSB research shows hundreds of schemes available to support small and medium-sized businesses, but no clear mechanism for evaluation, co-ordination or communication either at the national or local level."

A Government spokesman said: "The PAC's assessment does not reflect the reality, which is that credit conditions for SMEs are improving, new lending is being provided and small businesses are being offered cheaper loans rates.

"But we want to do more which is why the British Business Bank will be fully operational later this year.

"We expect the Bank to unlock up to £10bn of funding for firms over the next five years."

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