Where were the banks in the budget?
Despite the banking sector’s major contribution to the financial crisis that has provided the context for the last four Budget Days, the banks were barely mentioned by George Osborne in his budget speech. And the Budget itself devotes just six paragraphs of its 104 pages to the banking sector, in which it basically repeats what has already been agreed under the so-called ‘Project Merlin’.
There is no mention of plans for Northern Rock or the other state-owned banks, and the opportunity to provide some flesh on the bones of Project Merlin has not been taken, perhaps because there is none to be provided.
While businesses will doubtless support reductions in corporation tax, what companies have been calling out for – especially small and medium sized ones – is better access to credit. This is far more important to enable companies to grow than reductions in corporation tax. And on this the budget was silent.
A major problem with Project Merlin, as has been well-documented by commentators, is that the Government has no way of ensuring that the ‘extra’ credit to be made available to SMEs and other businesses will actually be lent. Another problem is the high rates of interest that many businesses are being charged, at a time when base rates are at an all-time low. There is nothing in Project Merlin or the Budget to improve the terms on which SMEs and other businesses are eligible for loans. There is no mention at all of overdraft facilities, although overdraft lending to small businesses has reduced much more sharply than loan lending has done.
In opposition, George Osborne made numerous self-righteous attacks on the banks, including calling for bankers’ bonuses to be limited to £2,000. As Chancellor, he seems to have decided to ignore his previous strong words and let the banks get back to ‘business as usual’ on their own terms.