Banks are part of the solution: They’re the lifeblood of UK economic growth
WHEN it comes to the economy, banks are usually seen as the problem – as the ones that got us in this mess. But banks are also part of the solution. It is not just that financial services is a major sector of the economy – one of the few sectors where the UK is genuinely a world leader, generating more net export earnings than the rest of the economy put together, and creating hundreds of thousands of jobs.
Banking is not just one sector of the economy among many, like tourism or pharmaceuticals. No, banks are the lifeblood of the economy. The rest of the economy – the real economy, as some like to call it – depends on banks.
Every business in the country has at least one bank account, and they use the services of the banks to manage their money. Businesses go to banks to raise money for investment – from a loan to an IPO – or to fund their current operations. They use banks to pay providers and get paid by customers. They go to banks to finance exports, to hedge against movements in currency prices or commodity prices, and to develop a strong supply chain with supply chain finance. They go to banks when they want to expand, or to take over competitors. Because they serve every business in the country, from start up to global corporation, banks have a unique insight into what needs to be done to get the economy purring again.
Banks are determined to play their part in supporting the economic recovery, and today I have written to the chancellor ahead of his Autumn Statement with proposals that banks believe will spur growth. These are not policies aimed at helping banks, but helping banks’ business customers.
Businesses are sitting on cash, too worried about the future to spend. To get the investment flowing, we recommend that the government consider a 100 per cent capital allowance for a limited period of two years, providing a huge incentive for businesses to invest now, and help build the momentum behind the recovery.
The government should consider extending the capital gains tax holiday under the Seed Enterprise Investment Scheme for a year, giving time to raise awareness among this scheme to get business angels to invest in start ups. It should look at whether the funds from Big Society Capital would find a quicker route to businesses if it was funnelled through the community development financial institutions, which fund businesses across the country.
It should look at whether its planned business bank could play a clearing house role between businesses seeking finance and sources of finance. It should review recent proposals from the FSA which hamper banks from referring businesses to angel investors. There are many other ideas worth considering – from fast tracking planning applications by SMEs to removing stamp duty on growth market company shares.
With policies such as these, we can get the economy moving again. And banks won’t be the problem, but part of the solution.
Anthony Browne is chief executive of the British Bankers’ Association.