BANKS have slammed government plans for a credit adjudication service to force them to lend more money to businesses, describing the idea as “just another layer of bureaucracy”.
Alistair Darling used Wednesday’s Budget to announce the creation of a watchdog which would be able to intervene when a company felt it had been unfairly refused credit by a high street deposit taker.
Lord Mandelson’s business department has been considering the launch of a lending adjudicator since December, although a firm decision to include it in the Budget was made only last week, City A.M. understands.
The government is now searching for a heavy-hitting ombudsman to head up the quango, and is offering a six figure salary in the region of £500,000.
It is unlikely to be up and running before the election however, and the government will need to pass fresh legislation to give it statutory powers.
Sources close to the plans suggested Clare Spottiswoode, the ex-director general of Ofgas, as a possible candidate, although the search is still at an early stage.
The adjudicator will have an annual budget of £5m and could end up using office space in the Bank of England to reduce its overhead costs.
It will have powers to force all banks to lend – not just state-owned Lloyds Banking Group and Royal Bank of Scotland.
Last night, several major institutions told City A.M. the scheme was unworkable.
One banking industry source said: “We would have concerns about adding just another layer of bureaucracy to the lending process. That could well be another hindrance to credit being extended in the UK.”
Another insider said forcing banks to lend to businesses they judged as uncreditworthy could be dangerous and could lead to depositors’ money being lost. Several banks said more competition in business lending, rather than paperwork, was the solution to the dearth of SME funding.
Angela Knight of the British Bankers’s Association said: “Either the government decides it wants to lend directly to business or it doesn’t. To try to set itself up as the expert assessor of credit strikes me as somewhat surprising to say the least.”
• Reporting by: David Crow, Oliver Shah, Steve Dinneen and Victoria Bates.
FAST FACTS | CREDIT WATCHDOG
● Would have the power to order all banks to lend, not just Lloyds and Royal Bank of Scotland.
● Funded with £5m a year and potentially based in the Bank of England’s building.
● Chief’s salary would be in region of £500,000.
● New legislation must be passed in order to give quango statutory powers.