Finance sector must highlight its contribution
AT a time when spending cuts, tax increases and unemployment dominate the headlines, leaders of the UK financial services industry face an unprecedented challenge getting their message across to the public and politicians.
Of course, we must recognise the real anger that continues to exist as a result of the mistakes made – not only by banks and bankers I hasten to add – during recent years.
But in owning up to and learning from past failings the City must not be timid about defending its relationship with the broader economy.
That is why I was glad to hear Royal Bank of Scotland chief executive Stephen Hester highlight the “vital contribution” made by financial services during a recent speech, and the fact that “it is our job to make sure that contribution is understood”.
I will be attending a parliamentary reception in Westminster tonight to help do just that.
Last year, the City’s contribution in terms of tax amounted to £61.4bn – 142 per cent of the interest cost of the current public sector debt.
Equally importantly, finance is the lifeblood of Britain’s manufacturing and wider services industries. Without funding, products go unmade while innovation and entrepreneurial spirit lack the budget needed to prosper.
Understandably the government is keen to ensure appropriate levels of lending reach SMEs up and down the country – as demonstrated by last Thursday’s meeting between Chancellor George Osborne, Business Secretary Vince Cable and bank chiefs.
The flow of credit is a vitally important issue but more lending targets are not the answer. There is absolutely no point forcing banks to lend money to those who don’t want it, or to projects without an acceptable risk profile.
The industry has been working hard to make sure customers know they are open for business but deleveraging across the economy means demand for loans has dropped, even as supply has remained relatively stable. Indeed, a senior industry figure recently told me that 85 per cent of SME applications for lending to his bank are successful – the same ratio as in 2007.
Total lending will only grow when the appetite for loans grows stronger. The only way to achieve this is to increase confidence in the business environment so SME’s feel in a position to take on extra credit to finance working capital and investment.
The City is not simply the Square Mile. This world-class industry benefits businesses across the UK – it is up to us to make sure politicians and the public remember this fact.
Nick Anstee is Lord Mayor of the City of London