Banks will now lend even less to small business

The biggest banks in the country will be lending less than expected to small and  medium-sized enterprises this year, at the same time as former bosses of Barclays, HSBC and Lloyds could be earning more than £3million in pay and benefits, the Sunday Times reports.

The widely-reported lack of bank lending, prompting fears of a ‘double-dip’ recession, led to “Project Merlin”, involving discussions between the Government and the ‘big five’ banks in Britain – Barclays, HSBC, Lloyds, Santander and RBS. According to the Bank of England, these five, plus Nationwide, account for around 65% of lending to business.

Discussions are nearing a close and agreement, according to Treasury Minister Danny Alexander on Sunday. Alexander, speaking to the BBC, said, “We are trying to have a settlement with the banks that enables the economy to move forward. The most important things are to secure additional lending for the economy, particularly for small business, and for the banks to show some responsibility about pay and remuneration to reflect the justifiable public anger.”

The likely agreed lending figure will be somewhere between £160-180million, compared to the £200million envisaged by the Government. A pay deal has not yet been agreed for current employees, by contrast to their former managers.

It remains to be seen whether Project Merlin will be able to pull a rabbit out of the hat and spark a strong economic recovery.