January 21, 2014 - Bill Esterson's Westminster Diary

Bill Esterson



One in five small companies working in construction has been forced to abandon plans for growth and investment because they are unable to raise sufficient funds from banks. That is according to the Federation of Master Builders (FMB). 

The construction industry is crucial to creating jobs and growth because money spent on building houses and schools is then in turn spent elsewhere in the economy. It is why road schemes like the Thornton Relief Road are so important to the economy of Sefton and why the news that the road is finally being built this year is so important to the recovery and to our long term prosperity.

But if so many firms are saying they cannot invest and grow because of the banks not lending, why is this and what can be done? 

The cause of the problem is the result of the global financial crisis. 

For years the banks lent money to people who could not possibly afford to repay them. The banks then sold on these loans around the world and the whole financial system became embroiled in a toxic combination of debts which could not be repaid in places like the United States and complex financial products which turned out to worthless and which were sold to unsuspecting businesses and individuals.

What is needed is an overhaul of the banking system in this country so that construction firms can borrow again to take on the workers needed to build the houses, schools and roads we need as a country. 

As the FMB reported, the main high street banks are just not lending especially to the smallest firms and it’s not just in the construction sector. Businesses in Formby, Crosby, Aintree and Maghull all tell me the same story. They have borrowed money from the banks for years, always repaid on time and have run successful businesses. But the banks will not lend to them despite a good track record of repayment. 

Gone are the days when the local bank manager knew his or her customers and lent money on the basis of trust and understanding of how the customer’s business worked. Now head office won’t let local bank staff lend money.

The FMB says: “The continuing refusal of the main high street banks to lend to viable building companies will hold back future growth for years to come. Until the banks change their lending policies, growth will continue to be hampered and the industry will not be able to deliver the improvements to our housing stock and the increased number of new homes that politicians of all parties say they want to see.”

But there is another way. 

Ed Miliband has just announced that he will break up the big banks if lending to small business does not improve. He has also said that he will set up a network of regional banks to do what the banks used to do, namely support their local customers. Simply put, we need to go back to a system of relationship banking where the bank staff understand their business customers and have strong working relationships. 

Having a regional system of banks will help achieve this because banks will know their area and the people they serve. Where banks and customers trust each other. Where banks give advice and support. And where the banks have a responsibility for helping business to create the jobs and growth we all need. 

If we are to all be in it together, the banks have a vital role to play and if we win the election, next year. Labour will make sure that the banks play their proper part in supporting ordinary people and small businesses in this country.