BANKS LENDING RATES CATCH 22.

BANKS LENDING RATES CATCH 22.

HOSIE: ‘VAGUE PROMISES NOT ENOUGH’.

STEWART HOSIE (SNP) WORKING FOR THE PEOPLE AND BUSINESSES IN SCOTLAND.

SNP Treasury Spokesperson, Stewart Hosie MP, has written to the Chancellor of the Exchequer calling for action to keep the costs of bank lending down. The call comes as the Treasury Select Committee publish a report which recognises that small businesses are struggling to secure credit.

Mr Hosie challenged the Chancellor on this issue in the House of Commons on Wednesday.

Commenting, Mr Hosie said:

“Up and down Scotland, we are hearing reports of businesses struggling to get the credit they badly need to grow. Banks say that a combination of the LIBOR rate, the requirement to strengthen balance sheets and the cost of Government insurance schemes place such a burden that they cannot offer affordable loans. This is an unacceptable Catch-22 which the UK Government has the power to resolve.

“On the floor of the House last week, I called on the Chancellor to examine the pricing policy of insurance guarantee and protection schemes to determine if bringing prices down might lower the cost of lending to business.

“The Chancellor said he will keep the situation under review but vague promises will not help struggling businesses. This is not enough. We need a clear timetable for progressing this situation and delivering affordable lending to Scotland’s businesses. I have written to the Chancellor seeking assurances that such a timetable will be implemented.

“It is right that tax payers’ money is not wasted – but it is equally important to recognise that business is the driver which will pull us out of recession and we must do everything possible to ensure they can get the credit necessary to grow.”

1. Below is the text of Mr Hosie’s letter:

Dear Alistair

At this time of recession, it is essential public money is spent efficiently and wisely. With this in mind, and further to our exchange in the Chamber on Tuesday 28^th April 2009, I am writing to request a timescale for a review of pricing policy in relation to the UK Government’s financial insurance schemes for banks.

As I related in our earlier discussion, the combination of the LIBOR rate, the requirement to strengthen balance sheets and the cost of Government insurance schemes is placing such a burden on banks that they are unable to provide affordable credit to business. Business and investment will be the driver which will pull us out of this recession, it is imperative we ensure that the credit markets are fluid.

Given the pricing of these insurance policies is at the discretion of Government, I would suggest that reviewing these pricing levels as a matter of urgency and I would be grateful if you could lay out a timetable for carrying out such a review.

Yours Sincerely,

Stewart Hosie MP

2. A full transcript of Mr Hosie’s House of Commons exchange with the Chancellor can be seen below:

Stewart Hosie (Dundee, East) (SNP): Although the base rate is only 0.5 per cent., the real cost of borrowing for business is much higher. The banks put that down to a combination of the LIBOR rate, the requirement to strengthen balance sheets and, to some extent, the cost of the various Government insurance guarantee and asset protection schemes. Given that the cost of the latter is within the Government’s control, is the Chancellor prepared to look again at the pricing policy for the insurance guarantee and protection schemes to determine whether a change might bring down the cost of money to the banks and therefore lower the cost of borrowing for business?

Mr. Darling: The hon. Gentleman raises an important point. The Government have put in place substantial schemes to deal with the problems of assets for which there is no market, or where prices have fallen, that were restricting the ability of the banks to lend. The Government have also made available funds through the special liquidity scheme and other measures. However, we have to make a charge for doing that, and we must also ensure that there is some discount, so that it is not just seen as a free good. The obvious other side is the need to ensure value for the taxpayer.

I think that one reason why the IMF withdrew its initial calculations when it tried to calculate our potential liabilities was that it had not quite realised that we had made provision against debts or provisions that might go bad. I have always made it clear that there is a fee to be charged and a price to be paid, because the banks cannot expect to receive this as a free good. Obviously, I will keep all these things under review, because my primary objective is to ensure that we get credit flowing through the economy again, and the banking system is essential to that. I appreciate the hon. Gentleman’s general point about what businesses pay. We will do everything we can to try to keep that price as low as possible, but I have to have regard to the general security of the taxpayer’s position.