Head of Business Alun Thorne looks at how normal relations between banks and business still appear some way off.
There is some debate as to whether Benjamin Disraeli or Mark Twain coined the phrase ‘lies, damned lies and statistics’ but never it seemed so apt than in the current debate as to whether banks are lending to businesses again.
On the one hand you have the banks. According to the British Bankers’ Association, they have seen lending to small businesses grow by £391 million in June with almost 50,000 new small-business relationships established with banks. Deposits from small businesses also grew by £577m, perhaps reflecting “improved business confidence”, said the group.
However John McFall, chairman of the Commons’ Treasury select committee, told BBC Radio 4’s Today programme that the picture on the ground appears very different.
“The Bank of England report that came out last week said quite clearly that there is less credit available for businesses and it’s more expensive. In May, lending was negative – it went down 5.4 per cent. These are the facts,” he said. Clearly, on both accounts there is no aim at deliberate subterfuge but you are unlikely to find more staggeringly different statistics to illustrate the same story. The upshot is that the issue of credit and its availability for business, big or small, has not been resolved, whatever the banks are telling us.
Evidently, it is an emotive issue - it can often be the difference between success and failure for a company during these tough economic times.
At the turn of the year, the Birmingham Post was probably reporting up to a dozen business failures a week and those were just the companies deemed newsworthy enough to cover due to their historical importance to the region or the loss of significant numbers of jobs. Those failures which did not make it into the newspapers were undoubtedly even more numerous.
But anecdotally - and this is certainly reflected in the notices coming through our inbox - the number of companies falling by the wayside is nothing like it was in the first quarter of the year and it is certainly down on the second.
It would be nice to think this is due to small businesses enjoying pre-credit crunch support from their banks and the massive influx of capital from the taxpayer must have had an effect, but with banks wanting to maintain their profitability and rebuild their battered balance sheets, there are still businesses out there crying out for support, be it from banks or anybody else.
Only yesterday, we reported the story of LAP Electrical, a Tier Two supplier to the automotive trade which is struggling to find the capital to develop a valve for a new range of Ford engines set to be launched next year.
The company has been unable to secure finance and has hit out at the raft of Government-led initiatives that are either impenetrable and bureaucratic or merely offer consultancy advice when what this and many other companies want is access to hard cash.
It is not an issue that is just affecting the small and medium-enterprise sector. The unseemly row between Jaguar Land Rover owners Tata Motors and the Government over guaranteeing a multi-million pound loan for the company to help it through the current economic downturn has been rumbling on for months now, with strut and counter-strut causing ill-will on both sides and a solution seemingly still some weeks away.
Whether the latest results from JLR, which have seen the company endure a £1bn swing from profit to loss, will force the Government’s hand is yet to be seen but, with advance orders for the new XJ flowing in and the XF still doing well around the globe, there can be no better example of an exceedingly viable, world-class company that will undoubtedly return to profit in the long term but needs financial support now.
Thankfully, the Government is not taking a head-in-the-sand approach to this problem - unlike the issue of risk-taking and astronomical bonuses in the City which don’t appear to have gone away - and last night some of the biggest names in the banking industry sat down with Chancellor of the Exchequer Alistair Darling and Business Secretary Lord Mandelson to find a way to encourage the banks to start lending again at levels that are acceptable to the Government and affordable to business.
But a word of caution came yesterday from Angela Knight, chief executive of the British Bankers’ Association, for those struggling businesses who believe last night’s meeting will be the answer to their prayers.
Speaking on GMTV, she said: “(We are stepping) up to the plate to lend to good businesses. There will be businesses out there which haven’t got a lot of business left. I don’t think the Chancellor wants us to lend savers’ money to businesses that are in such a difficulty.”
I suppose it would be too much to ask her to define ‘difficulty’.