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More competition needed in the banking sector

THE GOVERNMENT must encourage more competition in the banking sector if the UK is to fully recover from recession, according to the Federation of Small Businesses (FSB).

A decade ago, the Cruickshank Report found that the four main UK banks held 83 per cent of the banking market to small businesses.

The FSB has now said It is vital the Government looks at new ways to change behaviour in the credit market for small firms, adding the economy cannot return to business as usual with current lending.

Over 40 per cent of small businesses reportedly use a bank loan, overdraft, leasing or factoring for major credit purposes.

And those firms which do use the banks as their main source of finance are being penalised by high interest rates at a time when the base rate is at an all time low.

Simon Hanson, North East Policy Manager, at the FSB, said: “Demand for finance is at its highest as the economy enters recovery.

“If the Government truly believes that the private sector is going to help avoid a double-dip recession, it needs to consider alternative sources of finance.

“Small firms don’t have a huge amount of scope in accessing finance, unlike larger businesses. More competition in the sector will mean greater competitiveness in terms of the cost and the services provided and give access to the type of finance which large businesses are able to tap into.”

This was posted in Bdaily's Members' News section by Ruth Mitchell .