Source · Select Committees · Public Accounts Committee
Recommendation 23
23
The Bank recognised that it was “absolutely true that [the Scheme] had a distortive effect”...
Conclusion
The Bank recognised that it was “absolutely true that [the Scheme] had a distortive effect” but suggested that this was “diluting over time”.59 It confirmed that it still had an objective of encouraging diversity in lending markets. It explained that it reports on market shares of lenders in its annual small business finance report and its next publication was due in March 2022. The Bank told us that it had seen encouraging signs that diversity in small business lending market was starting to come back, with the amount of lending by alternative lenders remaining stable and their market share in new lending increasing again.60 The loans under the Scheme provided, however, lenders with a foothold in the 52 C&AG’s Report, paras 24, 3.13–3.14 53 Qq 11, 94 54 Qq 96, 101; C&AG’s Report, 3.10 55 C&AG’s Report, para 3.8 56 Qq 103–104, British Business Bank correspondence, 27 January 2022, which states that a total of 28 lenders were accredited to the Scheme 57 C&AG’s Report, para 3.10 58 Qq 97, 104; British Business Bank correspondence, 27 January 2022 59 Q101 60 Qq 98, 101, 102 Bounce Back Loans Scheme: Follow-up 17 SME lending market for up to 10 years, and we expressed our concerns about the long- term distortive effect that this may create. We highlighted in our first report on Bounce Back Loans that the Department had no business case at the launch of the Scheme. We were still concerned that the Bank was just waiting for its evaluation findings and that it was hoping that the Scheme had not had a long-term distortive effect.61 Lessons learnt from the Scheme and future preparedness
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.