4 Mar 2013

Is the funding for lending scheme working?

As quarterly figures show bank lending for businesses and homeowners fell by £2.4bn at the end of 2012, Vince Cable suggests the funding for lending scheme may need “adapting”.

The Bank of England figures show that net lending in the last three months of 2012 was £2.4bn less than in the preceding three months – despite participants in the Bank of England’s funding for lending scheme drawing down £9.5bn of available funds.

Overall, from the start of the funding for lending scheme in July 2012, until the end of the year, lending for mortgages was down by £350m. However, the bank said it expected credit conditions to improve throughout 2013.

It was also pointed out that January saw an increase of around £3bn in lending for mortgages, the largest increase in lending since September 2011.

‘Clear impact’

Prime Minister David Cameron’s official spokesman said that the government and the Bank of England had always made clear that it would take some time before the impact of the funding for lending scheme was felt, and that it was not expected as early as the fourth quarter of 2012.

“I think the Bank of England at the time of the launch of the policy was clear that it would take some time for the impact of the policy to be fully felt,” he said.

Read more: the latest news on the Bank of England

“The most recent figures for lending in the economy, for January – the first month of Q1 2013 (the first quarter of 2013) – show that lending to the economy increased in January.

“I think we are also seeing the impact of the funding for lending scheme through lower borrowing costs. I think we are seeing evidence of the policy having a clear impact.”

‘Left out in the cold’

However, concerns have been raised that while the money may be getting to homeowners, businesses are being “left out in the cold”.

Howard Archer, chief UK and European economist at IHS Global, said: “Concerns over the effectiveness of the FLS scheme will hardly have been eased by the latest lending data and it will add to mounting pressure on the Bank of England to find ways of getting working capital through to smaller companies in particular.”

Vince Cable says Funding for Lending may need to be adapted (picture: Reuters)

And Business Secretary Vince Cable said the figures were “disappointing” and admitted the scheme may need to be “adapted”.

He told BBC Radio 4’s World at One programme: “The funding for lending scheme only started last summer. It is working in some areas with some of the new banks, for example I talked recently to Aldermore, which is one of the new competitor business banks, it is making good use of it.

“But it isn’t yet countering the very negative trend, the very conservative lending patterns that the banks in general are promoting in relation to business.

“It may need to be adapted and I’m going to see the deputy governor of the Bank of England, who operates the scheme from the Bank of England, to discuss how we can improve it.”

Deeply disappointing

Shadow chancellor Ed Balls said: “These are deeply disappointing figures. Net lending is actually down since the funding for lending scheme started and down by £2.4 billion in the final three months of 2012. And the Bank of England’s own figures show that net lending to businesses fell by £4.5 bn in the last quarter.

“Businesses are losing patience with this government. After nearly three years of failure, the chancellor must explain what action he will take to finally boost net lending to small and medium-sized firms, which is vital if we are to get our economy moving.”