Each of the Liberal Democrat, Conservative and Labour parties are committed to continuing with the cycle of reform to the banking sector, including the ring-fencing of investment business (see further our Financial Services Regulation briefing).
Unsurprisingly, there is also a common desire to improve the funding of small and medium sized businesses and house-buyers, encouraging new challenger banks to enter the market with the ability to compete with existing high street lenders although it is unclear to what extent the promise in relation to retail banking is tied to the current retail banking market investigation; or how “new” the new challenger banks will be.
There is general consensus by all parties for continued support for, and extension of services provided by, the Green Investment Bank, a government owned bank that has been investing in UK based green infrastructure projects since 2012 (see further our Energy briefing).
The parties differ in that the Conservatives want Britain to have the toughest regime of bonus deferral and clawback of any financial centre and they intend to continue to sell the government’s stakes in the bailed-out banks and building societies. They pledge to continue the Funding for Lending scheme into 2016 and improve funding via the British Business Bank. The British Business Bank does not currently lend but informs SMEs about available funding options and finds lending partners. As part of the British Business Bank, the government recently announced a new Help to Grow Scheme intended to source unsecured junior or mezzanine investors to established businesses looking for substantial growth.
The Liberal Democrats also intend to expand the British Business Bank to tackle the shortage of equity capital for growing firms and provide long-term capital for medium-sized businesses. They pledge to encourage a new community banking sector to support small and medium-sized enterprises and social enterprises, and to establish a new government-backed Housing Investment Bank to provide long-term capital for major new settlements and help attract finance for major house building projects.
Labour pledge to establish a British Investment Bank to improve access for co-operative and mutual organisations to growth finance supported by a network of regional banks. This would be expected to reflect the recommendations of the 2011 report by Nick Tott2 to create a new lender to fund SMEs and infrastructure projects alongside private lending.