Bank lending must more than double to meet UK investment needs, TUC warns

Rob Johnston, Midlands TUC Regional Secretary

Total bank lending to firms outside of finance and real estate must more than double in order to meet the investment needs of the UK economy over the next decade, says a TUC report published today (Thursday), ahead of a seminar on the future of banking at its central London headquarters this afternoon.

The TUC report Banking after Vickers says that government has indentified £450bn-worth of physical investment, vital to the UK over the next decade. But with the current stock of bank loans to non-financial firms (excluding real estate) at just £322bn, banks would need to more than double their current level of lending to meet UK investment needs. This simply won't happen without radical reform of the banking sector, says the TUC.

Banking after Vickers says that since 2008 the main focus of debate on banking has been preventing a repeat of the crash and subsequent taxpayer bailout, addressed by the Vickers Commission, and the remuneration of top bankers.

But with the UK's growth prospects dependent on greater investment and access to credit, particularly for SMEs, the report argues that reforming the banking sector so that it better supports the real economy is the most vital banking issue facing the UK.

The report sets out four challenges facing the UK banking sector: low investment, SMEs, sectoral and geographical rebalancing of the economy and green growth.

Banking after Vickers shows that the UK's level of investment has been either the lowest or second lowest in the G7 for 30 years, and that the banking sector has a poor track record of lending outside of real estate and finance.

While credit easing and the Green Investment Bank are positive first steps towards encouraging more lending, they fall well short of the level of investment the UK economy needs, says the TUC.

Midlands TUC Regional Secretary Rob Johnston said: "Much of the media and political debate around banking has been on top bonuses and preventing another financial crash.

"But while these are both important issues, people are more concerned about jobs, better wages and healthier businesses - and banks have a vital role to play in creating all this.

"Decades of under investment, compounded by banks' poor track record of lending outside of real estate and finance, have left the UK economy dangerously lopsided. Our economy is far too focused on finance and banking, and in the South East.

"Greater lending to SMEs and support for green investment is vital to our future economic prospects but our current banking system is woefully ill-equipped to lend.

"Bold new ideas are needed to reform the banking sector so that it returns to its proper place as the engine of wider economy growth, and not as the cause of an economic depression."

The report is published ahead of a TUC seminar on the future of banking, hosted at TUC HQ between 2 and 4pm today, with includes presentations from Dr Adam Posen, member of the Monetary Policy Committee, George Magnus, Senior Economic Advisor at UBS, and Professor Richard A. Werner of the University of Southampton.

The TUC seminar also includes a Q&A session with the guest speakers and a discussion on possible reforms to ensure that banks play a far greater role in supporting economic growth.

For info

- Banking after Vickers is available at www.tuc.org.uk/bankingaftervickers

- The seminar is from 2-4pm at Congress House, Great Russell Street, London WC1B 3LS.