Britainís businesses are finding it difficult to acquire the finance they require to expand and grow despite recent government activity to raise lending levels, the Public Accounts Committee has disclosed.
The PAC identified that despite the introduction of the Funding for Lending Scheme back in 2012 that net lending levels has actually decreased by £2.3 billion in the past two years.
The Funding for Lending scheme was introduced back in July 2012 as a co-operative initiative between the Bank of England and the Treasury in a bid to bolster lending levels in the cautious banking sector of the UK.
Banks and building societies have been able to acquire funding at relatively low interest rates on the condition that they redistribute the money through loans to prospective homeowners and businesses.
And recently the Bank of England announced that the scheme would no longer be financing mortgage distributions and would instead be focusing on improving small business lending levels across the UK.
However, despite the scheme now solely focused on business lending, the PAC have said that small and medium businesses are still struggling to obtain the finances they need.
“Small and medium-sized enterprises have a vital role to play in driving the UK’s economic recovery… but many still struggle to access the finance they need,” said Margaret Hodge, chair of the committee.
“Government departments manage their various schemes not as a coherent programme but simply as a series of ad hoc initiatives.”
The PAC also attacked the coalitions Enterprise Finance Guarantee scheme, which is intended to provide financial assistance to businesses that have had their loan applications rejected by a bank or building society.
Recent figures on the scheme displayed that the quantity of loans given out through the scheme had decreased every year between 2010 and 2013, raising questions about its credibility and effectiveness.
And the PAC have argued that the Treasury and Bank of England have failed to achieve their aims with their flagship lending schemes, citing that it comes from a misunderstanding about where financing is really needed.
They added that if the problem is not corrected soon, that the government risked harming the UKís economic recovery by hindering the expansion of the institutions that are vital to achieving this- small and medium sized businesses.
However, the government has questioned the accuracy of the PACís findings, arguing that it has not taken into account the easier environment that businesses now enjoyed when trying to attain a loan.
A government statement read: “The Public Accounts Committeeís findings do not reflect the reality, which is that credit conditions for small and medium enterprises are improving, new lending is being provided and small businesses are being offered cheaper loans rateî.
British Business Bank boost
The PAC did reserve a positive forecast for this year, predicting that the introduction of the new British Business Bank will raise business lending levels significantly over the course of the upcoming year.
The British Chamber of Commerce also forecasted that the new bank would have a positive effect on lending levels this year, citing that the extra £1 billion available will help the UK economyís growth in 2014.
Last week Labour party leader Ed Miliband launched a scathing attacks on banks in the UK, calling for a complete break up and reform of the industry in order to bolster the countryís economic prospects.
Mr Miliband argued that banks have been ëan incredibly poor servant of the real economyí, and called for looser checks on finance distribution to assist in the expansion of businesses in the country.
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