Source · Select Committees · Public Accounts Committee
Recommendation 6
6
The Scheme has distorted the Small and Medium Enterprise (SME) lending market in favour of...
Conclusion
The Scheme has distorted the Small and Medium Enterprise (SME) lending market in favour of the largest UK banks, which goes against the Bank’s objective of creating a diverse finance market for SMEs. The Scheme’s low interest rate made it uneconomical for smaller or alternative lenders to participate to the same extent as larger lenders. This meant that some smaller lenders did not take part in the Scheme and larger lenders, who traditionally are less active in the SME lending market, lent 8 Bounce Back Loans Scheme: Follow-up relatively more. This resulted in the largest UK banks taking a 90% share in the Scheme’s lending to SMEs, distorting competition in the SME lending market as the Department and Bank expected at scheme launch. While we are encouraged to hear that the Department believes diversity is returning to the lending market, we remain concerned about its ability to identify and address any unintended or unforeseen consequences and the longer-term impact of the Scheme on the lending market. Recommendation: The Bank should develop a strategy to mitigate the negative impact of the Scheme on the SME lending market and publish its findings in its next Small Business Finance Market report. The Department should, alongside its Treasury Minute response, identify the unintended consequences of the scheme and what impact these have had.
Government Response
Not Addressed
HM Government
Not Addressed
6: PAC conclusion: The Scheme has distorted the Small and Medium Enterprise (SME) lending market in favour of the largest UK banks, which goes against the Bank’s objective of creating a diverse finance market for SMEs. 6a: PAC recommendation: The Bank should develop a strategy to mitigate the negative impact of the Scheme on the SME lending market and publish its findings in its next Small Business Finance Market report. 6.1 The government agrees with the Committee’s recommendation. Target implementation date: Spring 2023 6.2 As highlighted in the Bank’s most recent Small Business Finance Market Report, the provision of alternative finance recovered somewhat in 2021-22, reflecting the ending of the COVID-19 loan guarantee schemes in March 2021. Challenger banks regained the market share they had pre-pandemic, asset finance and invoice lending grew but was still below 2019 levels, and marketplace lending began to increase again. 6.3 The Bank has an explicit objective to improve the diversity of finance products and providers. It continues to monitor trends in the small business finance market and engages closely with stakeholders across the landscape. The next iteration of the Small Business Finance Market report, expected in Q1 2023, will continue to report on the evolution of the small and medium-sized enterprises (SME) lending market. 6.4 The Bank’s existing programmes continue to help challenger and specialist banks to make the SME banking market more diverse, for example through ENABLE Guarantees, the British Business Investments subsidiary, the Regional Funds, and the Recovery Loan Scheme.