Businesses let down by red tape and banks, MPs told

SMALL businesses are being put off from innovating and growing by damaging financial regulations and inadequate support from banks.

The warning comes from Parliament’s Treasury Committee which condemns the unfair debanking of legitimate businesses and substandard processes for resolving disputes between small to medium-sized enterprises and banks.

During its inquiry, MPs on the committee received evidence that more than 140,000 small businesses had been debanked in the last year – often with little to no notice.

It heard that at least 4,214 of the closures were attributed to ‘risk appetite' without a clear and consistent definition within the industry.

The committee is calling on the Financial Conduct Authority (FCA) to force banks to be more transparent about why decisions to debank businesses are taken.

They also believe the regulator should compel firms to send them the number of business accounts they have closed each quarter split by reason.

It has also recommended that the Financial Conduct Authority gives the Financial Ombudsman Service the powers to address personal guarantees for smaller firms as there is a gap in its remit which means small businesses are not receiving the same support as consumers.

Chairman of the Treasury Committee, Dame Harriett Baldwin, said: “There’s no hiding from the fact smaller firms have had a torrid time over the last few years.

“Unfortunately, what we have found over the course of the inquiry is that there are some instances where banks and regulators are making a tough world for small businesses needlessly tougher.”

Economic recoveries can only be sustained off the back of thriving small businesses. These firms create jobs in local communities that they have a vested interest in. They are the ones that endure the difficult times in the hope of a brighter future.

Small businesses are often at the vanguard of innovation. Bringing new ideas to market as they look to take advantage of a gap in the market.

However, the report out today from the Treasury Committee shows just how difficult a landscape it has become for small businesses.

Many are being put off from innovating and growing by damaging financial regulations and inadequate support from banks.

The Tories promised to cut red tape to aid businesses. The party has been in Government for 14 years. Yet it is clear that the Government has failed to deliver for small businesses.

MPs on the Committee condemned the unfair debanking of legitimate businesses and substandard processes for resolving disputes.

The report also calls on the Prudential Regulation Authority not to go ahead with plans to scrap the small business supporting factor in the new Basel 3.1 standards because it could lead to British small businesses falling behind their European and American competitors. It is a mechanism that lowers capital requirements on lending to small businesses.

Clearly there is a danger that small British firms will be further disadvantaged.

Any future government that is serious about turning the economy around would put small businesses at the heart of the recovery plan. Central to this would be access to capital.