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Banks agree Project Merlin lending and bonus deal | Banks agree Project Merlin lending and bonus deal |
(about 7 hours later) | |
A long-awaited agreement with the largest UK banks on lending, pay and bonuses has been announced. | A long-awaited agreement with the largest UK banks on lending, pay and bonuses has been announced. |
Under Project Merlin, banks will lend about £190bn to businesses this year - including £76bn to small firms - curb bonuses and reveal some salary details of their top earners. | Under Project Merlin, banks will lend about £190bn to businesses this year - including £76bn to small firms - curb bonuses and reveal some salary details of their top earners. |
The Bank of England will monitor whether loans targets are being met. | The Bank of England will monitor whether loans targets are being met. |
Liberal Democrat Treasury spokesman Lord Oakeshott resigned after the agreement was announced. | Liberal Democrat Treasury spokesman Lord Oakeshott resigned after the agreement was announced. |
Chancellor George Osborne also formally ruled out imposing a bonus tax, despite pressure from Labour. | Chancellor George Osborne also formally ruled out imposing a bonus tax, despite pressure from Labour. |
'Retribution to recovery' | 'Retribution to recovery' |
On Tuesday, the government increased a levy on banks to £2.5bn this year - raising an extra £800m. | On Tuesday, the government increased a levy on banks to £2.5bn this year - raising an extra £800m. |
Shadow chancellor Ed Balls accused the chancellor of "putting politics ahead of economics". | Shadow chancellor Ed Balls accused the chancellor of "putting politics ahead of economics". |
"For the chancellor who talked so tough in opposition... this is a pitiful outcome and an embarrassing climbdown," he added. | "For the chancellor who talked so tough in opposition... this is a pitiful outcome and an embarrassing climbdown," he added. |
He said the banks won't be forced to lend if they don't want to. | He said the banks won't be forced to lend if they don't want to. |
Mr Osborne acknowledged that the package would not be enough to assuage public discontent with the banks' role in the financial crisis, saying: "The anger will remain". | Mr Osborne acknowledged that the package would not be enough to assuage public discontent with the banks' role in the financial crisis, saying: "The anger will remain". |
Treasury sources said that the time had come to move on from "retribution to recovery" - focusing on the lending boost from banks rather than issues over bonuses. | Treasury sources said that the time had come to move on from "retribution to recovery" - focusing on the lending boost from banks rather than issues over bonuses. |
However, groups representing small businesses said that despite the increased lending, they feared the cost of borrowing would remain prohibitively expensive for many firms. | However, groups representing small businesses said that despite the increased lending, they feared the cost of borrowing would remain prohibitively expensive for many firms. |
Bonuses | Bonuses |
HSBC, Barclays, Royal Bank of Scotland (RBS) and Lloyds Banking Group have signed up to the Project Merlin agreement, while Santander has agreed to the lending parts of the deal. | HSBC, Barclays, Royal Bank of Scotland (RBS) and Lloyds Banking Group have signed up to the Project Merlin agreement, while Santander has agreed to the lending parts of the deal. |
Other pledges include providing £200m of capital for David Cameron's Big Society Bank, which is supposed to finance community projects. | Other pledges include providing £200m of capital for David Cameron's Big Society Bank, which is supposed to finance community projects. |
However, while banks have also been asked to show restraint in bonus payments, these are expected to total more than £6bn this year. | However, while banks have also been asked to show restraint in bonus payments, these are expected to total more than £6bn this year. |
On Wednesday, RBS said its investment bankers would share in a bonus pool of about £950m while chief executive Stephen Hester would get £2m in shares as a bonus. | On Wednesday, RBS said its investment bankers would share in a bonus pool of about £950m while chief executive Stephen Hester would get £2m in shares as a bonus. |
And Lloyds Banking Group's outgoing chief executive Eric Daniels is in line for a £1.45m shares bonus. | And Lloyds Banking Group's outgoing chief executive Eric Daniels is in line for a £1.45m shares bonus. |
As part of remuneration commitments under Merlin: | As part of remuneration commitments under Merlin: |
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BBC business editor Robert Peston said that "on paper at least, the UK will have the most transparent regime for bankers' remuneration in the world". | BBC business editor Robert Peston said that "on paper at least, the UK will have the most transparent regime for bankers' remuneration in the world". |
'Business concerns' | 'Business concerns' |
Banks loaned £179bn to businesses last year and the government wanted a commitment that this would increase. | Banks loaned £179bn to businesses last year and the government wanted a commitment that this would increase. |
They are also going to be providing £1bn of risk capital over three years for small businesses in parts of the UK worst hit by spending cuts. | They are also going to be providing £1bn of risk capital over three years for small businesses in parts of the UK worst hit by spending cuts. |
The government said that the measure of whether banks were providing the promised credit to business would be among the performance targets used to determine bonuses of bank chief executives. | The government said that the measure of whether banks were providing the promised credit to business would be among the performance targets used to determine bonuses of bank chief executives. |
The £76bn to be loaned to small business is up 15% from 2010 levels. | The £76bn to be loaned to small business is up 15% from 2010 levels. |
However, the provision of credit to UK businesses will be on commercial terms. | However, the provision of credit to UK businesses will be on commercial terms. |
And representatives of small companies have expressed concern that this means the lending pledge by the banks is "academic". | And representatives of small companies have expressed concern that this means the lending pledge by the banks is "academic". |
"The vast majority of businesses are not going to the banks and seeking finance at the moment," said Andrew Cave from the Federation of Small Businesses. | "The vast majority of businesses are not going to the banks and seeking finance at the moment," said Andrew Cave from the Federation of Small Businesses. |
"And those that do are telling us that the cost of borrowing - both existing and new borrowing - is increasing and those issues are not going to go away with today's announcement." | "And those that do are telling us that the cost of borrowing - both existing and new borrowing - is increasing and those issues are not going to go away with today's announcement." |
The British Chambers of Commerce (BCC) said that small business lending was a separate and "far more important and long-standing challenge" than the debate over bonuses. | The British Chambers of Commerce (BCC) said that small business lending was a separate and "far more important and long-standing challenge" than the debate over bonuses. |
Firms had seen relationships with lenders strained, added the BCC's director general, David Frost, who said "poor or opaque decision-making, over-centralised processes and a lack of good relationship managers on the ground" had caused a crisis of confidence between business and the banks. | Firms had seen relationships with lenders strained, added the BCC's director general, David Frost, who said "poor or opaque decision-making, over-centralised processes and a lack of good relationship managers on the ground" had caused a crisis of confidence between business and the banks. |
"While the big banks' renewed commitment to small business lending is welcome, ministers and the banks need to focus their energy on improving frontline services for small and medium-sized firms," he added. | "While the big banks' renewed commitment to small business lending is welcome, ministers and the banks need to focus their energy on improving frontline services for small and medium-sized firms," he added. |
"Without clear lending processes and more sensible decision-making at a local level, many businesses will still be reluctant to ask for loans and big net lending targets won't be met." | "Without clear lending processes and more sensible decision-making at a local level, many businesses will still be reluctant to ask for loans and big net lending targets won't be met." |
Do you own a small business? Are you struggling to secure credit? Has your business been refused a bank loan? | Do you own a small business? Are you struggling to secure credit? Has your business been refused a bank loan? |