Member Article

IPPR advises Government on “British Business Bank“

Think tank IPPR has reacted to Vince Cable’s announcement last week that the Government would launch a state-backed bank to lend to British businesses.

The Chancellor George Osborne and the Business Secretary are currently in talks over the running of a “British Business Bank” .

Disagreements last week over how the bank would be run sparked IPPR to issue a report on size, scope and operation of lending to small businesses.

Mr Cable suggested that businesses could potentially receive loans from state money, whereas the Chancellor said the Treasury would not offer up any money, but would make borrowing channels more accessible.

IPPR said the “British Business Bank” should be 100% state-owned but a “clear dividing line” must be established between the Government’s role and the role of bankers making lending decisions.

The report said that small business require a greater amount of credit and reduction of credit costs.

IPPR also criticised the misleading term, “bank”, which it said was an inaccurate description of what is essentially a small business lending service.

Further recommendations included advice to inject £40bn of capital in the initial stages of the scheme, over a period of four years.

The bank should gather funds from capital markets, according to the think tank, to reach a sum of £100bn total investment.

IPPR also advised that a British Investment Bank should have the scope to invest in infrastructure projects to support long-running finance schemes for SMEs.

Tony Dolphin, IPPR Chief Economist, commented: “Because the Chancellor will not spend more government money boosting aggregate demand in the economy, he has been reduced to indirect schemes like funding for lending to support growth.

“These require shifts in behaviour by the banks and pension schemes if they are to work and consequently are not as effective as more direct approaches.There is a danger that Vince Cable’s idea for a new bank will also have less impact on the economy than it could.

“What we need in the UK is a fully-fledged British Investment Bank designed to suit the particular circumstances of our economy.

“We urgently need infrastructure investment and financing for small and medium-sized businesses. A British Investment Bank could tackle these long-standing weaknesses in our economy.

“Such a Bank would require an initial injection of government capital which – on the existing accounting rules – would make it even less likely that the Chancellor would meet his fiscal targets.

“A fully-fledged British Investment Bank should not be held back by the vagaries of the UK’s accounting practices. Its self-financing activities should be excluded from the government’s target fiscal measures and it should be free to raise funds on capital markets.”

This was posted in Bdaily's Members' News section by Miranda Dobson .