By Daniel Hunter
A business-led economic recovery risks being undermined unless the Government moves rapidly to increase competition in banking, EEF, the manufacturers’ organisation, has warned.
In a submission responding to the Parliamentary Commission on Banking Standards, EEF, which represents almost 6,000 manufacturing and engineering businesses across the UK, warns that without access to competitive finance economic recovery could be stifled or, at worst, snuffed out.
EEF has written to Treasury officials warning that, while there is significant focus on banking standards and ethics, a far more significant issue for growth in manufacturing is the need for more access to finance for investment — with more competition in retail banking.
“Problems with accessing finance hold back growth. With business investment still a third below its pre-recession peak, getting finance at the right price and terms and conditions remains a huge problem for small and medium-sized businesses," Terry Scuoler, Chief Executive of EEF, said.
"Many of them have disengaged from banks altogether. Initiatives such as Funding for Lending provide some help, but we will only crack this nut by getting more competition into business banking.”
In its submission to the Treasury, which is expected to formally respond to the banking commission ahead of this summer’s parliamentary recess, EEF warns that business investment remains 34 per cent below the pre-recession peak, adding that poor access to finance, particularly for smaller firms, is a key reason for this performance.
EEF is calling on the Government to act rapidly to improve business’ access to finance by setting up a taskforce to drive competition in business banking, looking at:
• More incentives to encourage switching accounts, with increased ‘portability’ and potential savings for small and medium sized enterprises
• Lowering barriers to entry for new banks
• Considering the impact of these measures alongside an assessment by the Office of Fair Trading on whether a referral for SME banking is justified.
“The top four banks control 85 per cent of the business current account market and we must see this oligopoly end. The Government can make a difference by signing up to the Banking Commission’s recommendations to immediately review additional steps on how to make it easier to switch accounts and to increase competition," Terry Scuoler added.
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