Some thoughts to bear in mind before digging a grave for the Funding for Lending Scheme

FFS, FLS!

Six months into the Bank of England’s Funding for Lending Scheme (FLS), and we seem eager to anticipate its demise, like wolves padding after a limping bison.

The scheme, which offers banks funding at a discounted rate of interest so long as those lower rates are passed on to customers, has so far seen £13.8bn drawn from the Bank’s pot of £100bn, of which £9.5bn was accessed in last year’s final quarter.

The problem was, Q4 also saw overall bank lending drop by £2.4bn compared to the previous three months.

Oh those naughty, naughty banks. Lloyds Banking Group, RBS and Santander cut their lending totals by a combined £7.6bn during the quarter, despite drawing down £4.8bn between them through the scheme, while Barclays, despite growing lending during Q4, did so by only £5.7bn while drawing down £6bn.  

Of course, if banking was simple, we’d expect lenders to have squirted money into the hands of consumers and small business owners with wild abandon, in exactly the quantities drawn down.

But then, despite all our desires to the contrary, banking isn’t particularly simple. Here’s some thoughts to bear in mind before digging the FLS’ grave early.

First, as the Bank has already pointed out, the fourth quarter is never the strongest time for lending in the first place, and we would have been worse off without the boost of the FLS

Second, we shouldn’t forget the wider context, of major banks being mandated to shore up their capital bases in order to avoid being as exposed to ruin as they were in 2008. Unfortunately, the main way for them to do this is by cutting back on lending.

Third, there is a time delay on the reduced cost of funding offered by the scheme trickling through to customers, as it takes time for loans to make it through from application to payout. This has now been stated by the Bank often enough to feel a tiny bit “dog ate my homework”, but is still a fair point.

All things considered, I’m surprised people’s expectations were so high. Even before launching the scheme, the Bank predicted that we’d have to get some way into 2013 before we saw the real benefits of the scheme.

And before we expect miracles, let’s remember the fundamental obstacle facing the scheme: it can’t do anything at all about the cost of risk, i.e. what banks have to put aside in contingency for loan defaults.

Very small businesses, very new ones, and those in sectors considered by lenders to be on the ropes, will still have great difficulty being touched with a bargepole while the discounted funding can be channelled into lending to safe bets.

And who can blame the banks? We’ve spent five years pillorying them over subprime lending, so is it really a surprise they are so risk averse now? By demanding that banks pile more money into the SME sector, we are explicitly asking them to take greater risks.

So let’s give Threadneedle Street the benefit of the doubt and have this whole conversation again after Q1. If the scheme isn’t working, replacement isn’t out of the question - after all, the FLS was created to replace the underwhelming National Loan Guarantee scheme, which was quietly phased out after only six disappointing months.  

But let’s also revise down our expectations of what will constitute success for the FLS. If used correctly it will be able to soothe the symptoms of a deeply troubled system, but it’s never going to touch the roots of the problem.

Bank of England. Photograph: Getty Images

By day, Fred Crawley is editor of Credit Today and Insolvency Today. By night, he reviews graphic novels for the New Statesman.

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Find the EU renegotiation demands dull? Me too – but they are important

It's an old trick: smother anything in enough jargon and you can avoid being held accountable for it.

I don’t know about you, but I found the details of Britain’s European Union renegotiation demands quite hard to read. Literally. My eye kept gliding past them, in an endless quest for something more interesting in the paragraph ahead. It was as if the word “subsidiarity” had been smeared in grease. I haven’t felt tedium quite like this since I read The Lord of the Rings and found I slid straight past anything written in italics, reasoning that it was probably another interminable Elvish poem. (“The wind was in his flowing hair/The foam about him shone;/Afar they saw him strong and fair/Go riding like a swan.”)

Anyone who writes about politics encounters this; I call it Subclause Syndrome. Smother anything in enough jargon, whirr enough footnotes into the air, and you have a very effective shield for protecting yourself from accountability – better even than gutting the Freedom of Information laws, although the government seems quite keen on that, too. No wonder so much of our political conversation ends up being about personality: if we can’t hope to master all the technicalities, the next best thing is to trust the person to whom we have delegated that job.

Anyway, after 15 cups of coffee, three ice-bucket challenges and a bottle of poppers I borrowed from a Tory MP, I finally made it through. I didn’t feel much more enlightened, though, because there were notable omissions – no mention, thankfully, of rolling back employment protections – and elsewhere there was a touching faith in the power of adding “language” to official documents.

One thing did stand out, however. For months, we have been told that it is a terrible problem that migrants from Europe are sending child benefit to their families back home. In future, the amount that can be claimed will start at zero and it will reach full whack only after four years of working in Britain. Even better, to reduce the alleged “pull factor” of our generous in-work benefits regime, the child benefit rate will be paid on a ratio calculated according to average wages in the home country.

What a waste of time. At the moment, only £30m in child benefit is sent out of the country each year: quite a large sum if you’re doing a whip round for a retirement gift for a colleague, but basically a rounding error in the Department for Work and Pensions budget.

Only 20,000 workers, and 34,000 children, are involved. And yet, apparently, this makes it worth introducing 28 different rates of child benefit to be administered by the DWP. We are given to understand that Iain Duncan Smith thinks this is barmy – and this is a man optimistic enough about his department’s computer systems to predict in 2013 that 4.46 million people would be claiming Universal Credit by now*.

David Cameron’s renegotiation package was comprised exclusively of what Doctor Who fans call handwavium – a magic substance with no obvious physical attributes, which nonetheless helpfully advances the plot. In this case, the renegotiation covers up the fact that the Prime Minister always wanted to argue to stay in Europe, but needed a handy fig leaf to do so.

Brace yourself for a sentence you might not read again in the New Statesman, but this makes me feel sorry for Chris Grayling. He and other Outers in the cabinet have to wait at least two weeks for Cameron to get the demands signed off; all the while, Cameron can subtly make the case for staying in Europe, while they are bound to keep quiet because of collective responsibility.

When that stricture lifts, the high-ranking Eurosceptics will at last be free to make the case they have been sitting on for years. I have three strong beliefs about what will happen next. First, that everyone confidently predicting a paralysing civil war in the Tory ranks is doing so more in hope than expectation. Some on the left feel that if Labour is going to be divided over Trident, it is only fair that the Tories be split down the middle, too. They forget that power, and patronage, are strong solvents: there has already been much muttering about low-level blackmail from the high command, with MPs warned about the dire influence of disloyalty on their career prospects.

Second, the Europe campaign will feature large doses of both sides solemnly advising the other that they need to make “a positive case”. This will be roundly ignored. The Remain team will run a fear campaign based on job losses, access to the single market and “losing our seat at the table”; Leave will run a fear campaign based on the steady advance of whatever collective noun for migrants sounds just the right side of racist. (Current favourite: “hordes”.)

Third, the number of Britons making a decision based on a complete understanding of the renegotiation, and the future terms of our membership, will be vanishingly small. It is simply impossible to read about subsidiarity for more than an hour without lapsing into a coma.

Yet, funnily enough, this isn’t necessarily a bad thing. Just as the absurd complexity of policy frees us to talk instead about character, so the onset of Subclause Syndrome in the EU debate will allow us to ask ourselves a more profound, defining question: what kind of country do we want Britain to be? Polling suggests that very few of us see ourselves as “European” rather than Scottish, or British, but are we a country that feels open and looks outwards, or one that thinks this is the best it’s going to get, and we need to protect what we have? That’s more vital than any subclause. l

* For those of you keeping score at home, Universal Credit is now allegedly going to be implemented by 2021. Incidentally, George Osborne has recently discovered that it’s a great source of handwavium; tax credit cuts have been postponed because UC will render such huge savings that they aren’t needed.

Helen Lewis is deputy editor of the New Statesman. She has presented BBC Radio 4’s Week in Westminster and is a regular panellist on BBC1’s Sunday Politics.

This article first appeared in the 11 February 2016 issue of the New Statesman, The legacy of Europe's worst battle