The deputy chairman of the Treasury Select Committee has stated that in order for the banks to increase lending to small business the Government must look into a rethink of their banking bail-out policy, which sees the banks prioritise paying money to the Government instead of lending to small businesses.

Banks across the country have been under heavy criticism recently for not making lending funds available for small business through the economic crisis.  Small businesses have been hailed as the ‘backbone’ of the country’s economy as the enormous number of small business in Britain, 4.7 million, employee a staggering 13 million people.

However, banks have been denying loans to small businesses in the wake of this economic downturn, and small businesses have been subject to heavy interest rates and minimum support from their banks.  This has led to many small business owners lose faith in their bank managers and their banks and more and more owners are turning to accountants for help over their bank managers, to pull them through this crisis.

The deputy chairman of the Treasury Select Committee, and Conservative MP for Sevenoaks, Michael Fallon, has blasted the terms of the recent £500 billion bank bail out scheme, put in place by the Government last month, which sees banks being allowed to pay money back to the Government over providing loans for small businesses.

Fallon said, “The package was put together in a rush over a weekend and some of the terms look counter-productive.  They are making them do the wrong things – making them store up cash and then repay the Government – when what you want them to be doing is lending out to businesses because the whole credit market is shrinking.

“They have every incentive to accelerate repayments to the Government and the preference shares are, of course, very expensive. The Government money is distorting mainstream banking activity.”

Gordon Brown, meanwhile, has ruled out the nationalisation of banks in Britain.  The news came after the Government took control of the Royal Bank of Scotland with a generous 57.9 per cent stake in the shareholding.

Mervyn King, the governor of the Bank of England, recently claimed that a major takeover of the banks by the Government was essential to providing small businesses with the necessary funds they needed to see themselves through the storm, but Brown has quashed all mention of such a move claiming that Mr King had been talking about “an extreme circumstance where banks had ceased to function”.

In a move that will add pressure on other banks in the country, the Royal Bank of Scotland, now controlled by the Government, is providing borrowers a comfortable six-month grace period is they are struggling to make the repayments on their mortgages.  Close to 168,000 borrowers are at least three months behind on their mortgage repayments which is a huge 8 per cent rise since June.  Bankers with the Royal Bank of Scotland will be highly relieved by the news, as well as the supposed imminent news that the Bank of England will hopefully be cutting the interest rates this week by between a half and a full percentage this week.

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