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Business fund in doubt as banks pull out

THE government’s proposed fund to stimulate lending to businesses was in trouble last night after it emerged a number of major banks may refuse to contribute amid a row over bankers’ bonuses.

Standard Chartered has already turned down ministers’ requests to provide at least £25m to support the launch of the National Investment Corporation (NIC) and it is thought Barclays and US investment banks may follow suit.

A Barclays spokesman said: “We are considering the proposal that has been put to us.”

Standard Chartered is not a major lender to the UK and focuses on Asia, Africa and the Middle East.

But it is thought the government’s announcement last week that it plans to introduce a 50 per cent tax on discretionary bonuses is a key reason why banks are veering away from contributing to the NIC’s growth capital fund for small and medium sized businessed.

Ministers asked banks to contribute £25m to £35m each after the fund was announced in the pre-budget report.

However, so far only the two state-backed banks – Lloyds Banking Group and Royal Bank of Scotland – have agreed to pay up. Lloyds and RBS may put in as much as £200m between them.

US banks Citigroup, Goldman Sachs and Morgan Stanley are thought to be undecided yet although they have had meetings with Lord Mandelson, the Business Secretary, and Chancellor Alistair Darling to discuss the issue.

The City has warned there may be a flight of key players overseas to avoid the tougher legislation.
But a senior Bank of England official yesterday said that if some banks migrated overseas “it might be a price worth paying” in order to protect the reform of the financial system.

Andy Haldane, the Bank’s head of financial stability, told the BBC World Service that there were advantages in the UK acting alone.

Deutsche Bank said yesterday it would spread the pain of the supertax on bonuses among its staff around the world as it would be unfair to treat UK workers differently.