Merlin 'one step in fight for fairer business lending deal'

BUSINESS leaders last night branded the UK government's Project Merlin deal with the banks as "a step in the right direction" - but renewed their calls for fairer lending conditions.

Chancellor George Osborne said the UK's biggest banks had agreed to lend about 190 billion to businesses this year, up from about 175bn last year.

Barclays, HSBC, Santander and part-nationalised lenders Royal Bank of Scotland and Lloyds have agreed to meet the new target and all except Santander have conceded to demands for lower bonuses. They will also provide more disclosure on senior executives' pay.

Figures from the Treasury showed that 76bn of the lending was intended for smaller firms, up from 66bn last year.

Project Merlin also commits the banks to adding an extra 1.2bn to the UK government's business growth fund to invest in expanding small businesses in the areas most affected by public sector cutbacks.

Liz Cameron, chief executive of Scottish Chambers of Commerce, said it was "particularly important" the bulk of the extra lending was aimed at small firms.

But she added: "One of the main concerns for businesses is the cost of borrowing and the sometimes onerous conditions attached to loans rather than the volume of lending.

"Project Merlin is a step forward in terms of transparency and monitoring, but the journey towards re-establishing solid and lasting relationships between business and the banks remains challenging."

David Frost, her counterpart at the British Chambers of Commerce, added that banks needed to improve their services to businesses. "Without clear lending processes and more sensible decision-making at a local level, many businesses will be reluctant to ask for loans and big lending targets won't be met," he said.

A spokesman for the Federation of Small Businesses in Scotland said any increase in lending was good news but said the devil would be in the detail. He added: "Ourselves and the Bank of England will be keeping a close eye on the banks to see if this is gross or net lending. We welcome this deal but, until owners of small businesses can walk into a high street bank and feel confident that they will be lent money at a reasonable rate, we're going to be a long way from a stable economy recovery."

Matthew Fell, director for competitive markets at the CBI, said the deal was "good news" for smaller companies.

HSBC chairman Douglas Flint said: "We very much welcome this agreement as a turning point in the dialogue between banks and government." ."

Osborne had on Tuesday surprised the banks and the City with an extra 800 million in taxes, raising the bank levy from 1.7bn to 2.5bn.

But trade unions were less impressed with the new lending and bonus deal. Grahame Smith, STUC general secretary, said: "This pathetic deal only serves to underline that the banks exert a stranglehold on UK government action.

"The targets for lending are essentially meaningless and are likely to have no positive effect on those growing businesses unable to access affordable credit."

David Hillman, spokesman for the Robin Hood Tax campaign, which wants to use levies on the banks to fund poverty relief in developing countries, added: "Project Merlin is a cheap con trick, pretending that the banks are being brought to heel when they are actually being let off the hook. The vested interests of the City are being put ahead of the needs of taxpayers."