Banks face higher taxes if they fail to lend to business, Cable warns

Business secretary tells MPs the government could alter the tax regime if banks do not keep their side of the Project Merlin deal Banks will face higher taxes if they do not bolster lending to small businesses, Vince Cable said on Wednesday as he warned that restricted credit to businesses could hamper any economic recovery. The business secretary also told the Business Innovation and Skills select committee of MPs that he was “pressing” banks for evidence that executive pay was linked to lending, as had been pledged under Project Merlin . Signed in February after months of prevarication, Merlin involved promises by banks to lend £190bn to businesses and reduce the size of their bonuses. Cable was speaking just hours before the heads of Britain’s four major banks – Royal Bank of Scotland, Lloyds Banking Group, HSBC and Barclays – were due to appear before the Treasury select committee to discuss the proposals by the independent banking commission. All four banks signed up to Merlin. Cable restated his case that a separation of retail banks from “casino” investment banks was “desirable for the real economy” but said the government was waiting for the final report by Sir John Vickers in September before reaching conclusions on the future shape of the industry. Cable said that there was a “serious problem” with lending to small businesses, that was greater than the banks were prepared to acknowledge. He said that if in a year’s time the banks had not kept their side of the Merlin deal, the government would be “absolved” of its promises not to alter the tax regime. “The chancellor and prime minister have made it clear that if we don’t get results, they have said we should take further action with tax on banks,” Cable said. “Clearly we do have the option of approaching the taxing of profits, or bonuses or balance sheets in a different way.” He added: “It is hard to imagine we could penalise individual banks.” Banks tend to argue that there is a reduced demand for loans because of the fragile economic conditions, while small businesses argue that the banks are restricting supply. The first update on Merlin published in May showed that the industry was missing its commitments . The shortfall was in lending to small and medium-sized businesses, which was £2bn short of targets set by the Treasury, rather than to large businesses. Cable said: “We can debate how much is lack of demand and how much is supply. We believe there is an issue with the supply and cost of finance and it is inhibiting recovery. If it’s not dealt with, it will inhibit recovery as we move into more rapid growth.” Asked if Merlin was producing any change in behaviour, Cable said that small business lending was now discussed at a board level each month at Lloyds, which is 41% owned by the taxpayer after being bailed out in October 2008. He said Lloyds was leading the way “in cultural change”. He also appeared to indicate that Santander was living up to its pledges. As well as the “stick” of higher taxes, Cable said executive pay could also be affected – but said he was disappointed by the evidence of links between pay and lending. Banking Project Merlin Executive pay and bonuses Vince Cable Jill Treanor guardian.co.uk

Posted by on June 8, 2011. Filed under News, Politics, World News. You can follow any responses to this entry through the RSS 2.0. You can skip to the end and leave a response. Pinging is currently not allowed.