Government gears up for fight with banks over lending targets

THE GOVERNMENT ratcheted up the pressure on the banks yesterday, ahead of new figures that are expected to show that the industry is failing to meet lending targets.

As part of the Merlin deal, banks were asked to lend £190bn this calendar year, with £76bn of that going to small businesses. But official figures due Monday are expected to show banks approved £17bn of lending in the first three months of the year, £2bn less than their implied £19bn quarterly target.

Vince Cable, the business secretary, yesterday repeated threats that the banks could be forced to pay higher taxes if they miss the lending targets.

He said: “If the banks don’t deliver there are options open to the government, including taxation.”

However, the Merlin agreement on lending only stipulates that banks must meet their targets “should sufficient demand materialise”.

A thorny issue for the government is how it can prove demand, especially as growth has been more sluggish than the Treasury expected when the agreement was signed in February.

An aide to chancellor George Osborne said the burden of proof would be on the banks: “The banks need to prove their sales are drumming up business, and giving them incentives to lend more.”