Labour’s plan for small businesses
Small Business lending
Under the Tory-led government
- The inability to get banks to lend to small businesses is one of the biggest failures of this government. Lending has fallen by £56bn since 2010.
- Net lending to small business fell by a further £1 billion in the most recent quarter.
- 85% of Britain’s five million small businesses are locked into just five big banks.
- We would properly resource the British Investment Bank by using the planned increase in fees for the mobile phone spectrum – estimated to be up to £1billion.
- The British Investment Bank would also have a regional network, looking to emulate the best features of the German local banking model – which oversaw an increase in small business lending during the financial crisis
- German local banks, known as Sparkassen, are commercial banks, which are profit-making but not profit-maximising. They are confined to lend within a specified region and have a legal responsibility to promote regional growth.
The German Sparkassen has been around for a century – how could you copy it in the UK?
The key principles of this model - permanency through state backing; a core duty to support growth and innovation within a defined area; professionalism with banking experts who understand their local customers – can thrive in a British context, as seen by the success of institutions like the Bank of Salford.
Sparkassen are not able to expand out of their defined regional area, branch managers are intimately attuned to their local economies and have the authority to lend to the entrepreneurs and businesses they felt would succeed in their community. This is the model we want to emulate.
Isn’t the government’s “Start up Loans” programme doing a great job in lending to budding entrepreneurs?
We are supportive of the scheme. However, we have some concerns on the geographical spread of loans. The first £50m lent under the government’s flagship “Start-up Loans” scheme benefited 10,000 companies. However, this money was not distributed evenly. 44% of this went to London and the South East whilst just 5% went to the North East.