UK bank scandals making entrepreneurs reluctant borrowers

LONDON: One of the curious things about Britain is how much better the country is at creating new companies than nurturing them once they've been started.

When it comes to new business formation, the UK sits close to the top of the European league table. At 14 per cent of the total company population, its annual business birth rate exceeds those of other large EU economies, such as Germany and France.

But fast forward a little bit, and pretty quickly the country slides down the rankings. After three years, the number of those companies employing more than 10 people lags behind badly compared with the European peer group. That places the UK 13th out of 18 countries, according to the Federation of Small Business.

So while British entrepreneurs race out of the blocks, they then soon slow to a potter. This isn't a costless foible. The inability to grow small businesses is one factor behind sub-standard productivity and low wage growth.

Some believe the slow pace may reflect the fact that modern Britons have become wedded to the idea of running "lifestyle" companies - the sort that make artisanal cheese, or own hipster cafés, and don't tend to grow much. But there's another, more likely explanation, which is that owners don't want to seek outside capital. The main source is after all a bank - and the UK's largest lenders have since the financial crisis been wading through a series of trustsapping scandals with business customers.

Many are embroiled in accusations that they mis-sold derivatives in industrial quantities to smaller companies, now the subject of an industry-wide compensation scheme. Then there is the case of RBS, and its controversial GRG restructuring unit, which is accused of pushing smaller companies unnecessarily into bankruptcy.

This has become so rancid that Ross McEwan, the state-owned bank's chief executive, recently berated his own customers for "bad mouthing" the bank and making "false accusations" about the behaviour of GRG. And that again is despite the existence of a £400m restitution scheme.