Select committee: Treasury Committee
Conclusion 2
Eighth Report - SME Finance
Published 8 May 2024
Paragraph 25
Addressed to HM Treasury
Treasury Committee SME Finance All items in this report Report on parliament.uk ↗ Inquiry on parliament.uk ↗
Conclusion (the committee's words)
The removal of the SME supporting factor under Basel 3.1 threatens to undermine the UK’s SME finance market by increasing capital requirements on lenders to SMEs. This will drive up the cost of finance for SMEs and may restrict the supply of lending as banks shift their loans away from the market. At a time when costs are tight and acceptance rates for finance low, anything that unnecessarily damages the availability of finance to SMEs is unacceptable. Other jurisdictions like the United States and European Union are also not pursuing as strict an interpretation of Basel with regards to SME lending so removal of the SME support factor risks putting the UK out of step with international peers and competitors, with negative consequences for the competitiveness of the UK market.
From: Treasury Committee, Eighth Report - SME Finance (HC 27), paragraph 25, 8 May 2024
Government response
The government responded to the whole report on 12 December 2024 (deadline 8 July 2024).
Summary written by Accountability Index from the government's response. It is not the government's own words.The Government welcomes the report and sets out a mixed position: it agrees on bank account closures, the British Business Bank and the Growth Guarantee Scheme, but considers a full consultation on a new dispute mechanism "not warranted at this stage".
- On Basel 3.1, the Government notes that the PRA is removing the SME supporting factor but "will make structural adjustments to another part of the capital framework to maintain the current capital requirements for SME lending". It will continue to monitor US implementation.
- On dispute resolution, the Government considers a full consultation is not warranted at this stage and says it is "doubtful" there is sufficient volume to justify a new mechanism outside the FOS. It notes the BBRS closure decision is a matter for the BBRS and will continue to monitor SME disputes.
- On de-banking, the Government agrees current closure requirements could be improved. The Treasury "intends to bring forward legislation" requiring a detailed explanation and longer notice, unless exceptions such as financial crime apply. It says the FCA recommendations are primarily for the FCA.
- The Government agrees the Growth Guarantee Scheme has an important role. It has been extended to the end of March 2026, and any decision on making it permanent "will be taken at Spending Review".