BUSINESS Secretary Vince Cable’s plans for a government-backed business bank and a long-term industrial strategy to get firms investing and expanding is interesting, but judgement is best reserved until we get down to brass tacks.
Crucially, there is no information yet about the size of the bank and how it will work in practice. Cable says the new institution, designed to free up credit for business, might operate through the so-called “challenger” banks outside the “big five”, suggesting that the likes of the Co-op Bank, Virgin Money and so on might have a role to play. There is also the possibility of using non-bank lenders.
But, perhaps to manage expectations, Cable gave a big hint in his speech at Imperial College in London yesterday that the new business bank should be viewed more as a catalyst than a frontline credit-provider to galvanise the wider business lending market.
“The measure of the institution’s success will not be the scale of its own direct interventions, but how far it shakes up the market in business finance and helps to ease constraints for high-growth firms,” the business secretary said. Pour encourager les autres, as the French say.
Perhaps it is inevitable at this early stage, but the government banking project appears nebulous, thus businesses, while welcoming it, will therefore not put out the bunting yet.
In the short to medium term, the new business lending institution will face the headwinds that other initiatives have done, including Project Merlin and Funding for Lending.
Meanwhile, Cable also identified the business areas where he sees Britain having a competitive advantage that government wants to hone via “strategic partnerships”.
Financial support from Whitehall, though unquantified, would be involved in trying to put a strategic following wind behind these industries.
They are aerospace, automotive and life sciences; higher and further education and professional and business services; the information economy, construction and energy.
If this replaces ad hoc, flavour-of-the-month, flip-flop industrial planning with something altogether more cohesive, then it would be valuable for the long-term.
There is also just the hint of centralised planning here that Liberal Democrat members of the coalition government will welcome and some Conservatives may look askance at. The Lib Dems badly need something tangible to show they are not just make-weights in the administration.
Perhaps it worked out quite nicely that Prime Minister David Cameron could give Cable the slack to give that relief to his colleagues, while also allowing the Conservatives to show themselves as taking the need for long-term growth, as well as austerity, seriously.
Things would have been much worse without QE
External Bank of England monetary policy committee member, David Miles, made the point in his speech to the Scottish Economics Society that it is unwise to infer that quantitative easing has been ineffective because the economy has been stagnant over the past 18 months or so.
None of us know how much worse things might have got in that period without the countervailing expansionary force of massive bond-buying by the Bank of England from the high street clearers.
The “success” of QE – with a similar exercise also being undertaken by the European Central Bank – could be in damage limitation of the worst downturn since the Great Depression.