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Stephen Caddick

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In searching for growth, Cable banks on more of the same

Posted: 27/09/2012 16:59

Vince Cable is right that there is a problem with UK banks in this country - hence his attempt to rectify it with his proposals earlier this week to establish his own. There is a desperate need to provide capital to both first time and serial entrepreneurs - but pending a miracle, the business secretary's proposals will do nothing to address it.

The promise of a new bank in a couple of years will do nothing to stimulate new lending now, which we need to help the economy grow. The Business Secretary seems to have forgotten that the main priority of a bank is to make money - and at present, commercial banks can do that simply by accepting government hand-outs provided by quantitative easing. Our economy is stuck because there is no reason for banks to lend to businesses, especially not those that are risky.

In the short term we cannot afford another bank - we need serious action on lending, yes, but also a more business friendly environment. There are millions of people whose jobs rely on fast growing companies which are stifled because of red-tape and a lack of growth capital.

If the Government has a serious intention to provide capital for business then it would seek alternatives to the creation of a new bank. These could include innovation bonds, enhanced tax incentives for investors and further direct grant aid for start-up businesses. Existing public agencies such as the Technology Strategy Board (TSB) and Capital for Enterprise (CfE) are already set up ready to administer such schemes and distribute funds to businesses based on robust business plans and compelling propositions.

The creation of a new public funded business bank is not necessarily a bad idea for the long term, but right now it is a policy luxury that the country cannot afford. The Business Secretary might argue that he is trying to stimulate some creative destruction, forcing the banks to change. However, as it stands this idea is neither big enough, nor creative enough, to solve the key problem that businesses face. Indeed it is likely to make the situation worse, because the promise of a new bank will make it even easier for existing banks to continue with business as usual.

Our number one concern must be growing the economy in order to create jobs in the UK. British business will not benefit from this misguided policy, which seems to be more designed for party conference window dressing than the serious business of rebuilding a sustainable and prosperous economy.