Will the Sparks light up SME lending?

Ed Miliband is a man with a plan.

George reports that Ed Miliband is to take inspiration from the German Sparkassen system, and establish a new network of regional banks in the UK.

Miliband, and his shadow business secretary Chuka Umunna, are positing the new banks—apparently to be anglicised as "Sparks"—as a solution to Britain's lending crisis. The idea is that by devolving state-supported lending to SMEs down to the regional level, the banks may be able to use their local knowledge to get more return on their investment—helping the business with strong links to the local community and a record of job creation, rather than just the one which has the healthiest profit/loss ratio.

The move is supported by many. David Green, the director of the Civitas think-tank, says that, "the Sparkassen were a major factor in helping Germany bounce back from the recession so much more quickly than the UK, which has been held back by the coalition Government's miserable failure to learn the most obvious lessons from overseas."

But the problem with Britain's SME lending is more complex than just greedy bankers. The ever-perceptive Dan Davies sums it up in just a few tweets:

 

 

 

 

 

 

 

 

The meme of "greedy bankers not lending to embattled small businesses" is a strong one, but as Davies says, there are far more structural problems when it comes to that market. Basicall

What we should really be looking for in the Sparks, then, is whether they can overcome those problems. They clearly can't fix our housing market, and if defaulting on a business loan locks you out of the housing market forever then risk aversion on the part of the business owners is understandable. At the same time, to remove that barrier—to let SMEs take out loans which don't require personal guarantees—is inviting fraud.

The big hope for the Sparks is that they will be able to crack down on fraud in other ways. If their regional basis really does render them better-placed to work out whether a particular application is fraudulent than commercial banks, then they could stand a chance of making un-guaranteed loans profitable. Alternatively, of course, the government could decide that, in a recession, the profitability of the banks is no longer an issue. The Sparks could be run at a loss, deliberately making riskier loans than is commercially sensible, until growth picks up.

That wouldn't work as a stated policy, because the minute it was announced that they would be deliberately amenable to fraud, fraud would shoot up. But if Labour were more interested in fixing the economy than getting credit for fixing the economy, it could be a smart way to go.

A German Sparkasse. Photograph: Getty Images

Alex Hern is a technology reporter for the Guardian. He was formerly staff writer at the New Statesman. You should follow Alex on Twitter.

Photo: André Spicer
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“It’s scary to do it again”: the five-year-old fined £150 for running a lemonade stand

Enforcement officers penalised a child selling home-made lemonade in the street. Her father tells the full story. 

It was a lively Saturday afternoon in east London’s Mile End. Groups of people streamed through residential streets on their way to a music festival in the local park; booming bass could be heard from the surrounding houses.

One five-year-old girl who lived in the area had an idea. She had been to her school’s summer fête recently and looked longingly at the stalls. She loved the idea of setting up her own stall, and today was a good day for it.

“She eventually came round to the idea of selling lemonade,” her father André Spicer tells me. So he and his daughter went to their local shop to buy some lemons. They mixed a few jugs of lemonade, the girl made a fetching A4 sign with some lemons drawn on it – 50p for a small cup, £1 for a large – and they carried a table from home to the end of their road. 

“People suddenly started coming up and buying stuff, pretty quickly, and they were very happy,” Spicer recalls. “People looked overjoyed at this cute little girl on the side of the road – community feel and all that sort of stuff.”

But the heart-warming scene was soon interrupted. After about half an hour of what Spicer describes as “brisk” trade – his daughter’s recipe secret was some mint and a little bit of cucumber, for a “bit of a British touch” – four enforcement officers came striding up to the stand.

Three were in uniform, and one was in plain clothes. One uniformed officer turned the camera on his vest on, and began reciting a legal script at the weeping five-year-old.

“You’re trading without a licence, pursuant to x, y, z act and blah dah dah dah, really going through a script,” Spicer tells me, saying they showed no compassion for his daughter. “This is my job, I’m doing it and that’s it, basically.”

The girl burst into tears the moment they arrived.

“Officials have some degree of intimidation. I’m a grown adult, so I wasn’t super intimidated, but I was a bit shocked,” says Spicer. “But my daughter was intimidated. She started crying straight away.”

As they continued to recite their legalese, her father picked her up to try to comfort her – but that didn’t stop the officers giving her stall a £150 fine and handing them a penalty notice. “TRADING WITHOUT LICENCE,” it screamed.


Picture: André Spicer

“She was crying and repeating, ‘I’ve done a bad thing’,” says Spicer. “As we walked home, I had to try and convince her that it wasn’t her, it wasn’t her fault. It wasn’t her who had done something bad.”

She cried all the way home, and it wasn’t until she watched her favourite film, Brave, that she calmed down. It was then that Spicer suggested next time they would “do it all correctly”, get a permit, and set up another stand.

“No, I don’t want to, it’s a bit scary to do it again,” she replied. Her father hopes that “she’ll be able to get over it”, and that her enterprising spirit will return.

The Council has since apologised and cancelled the fine, and called on its officials to “show common sense and to use their powers sensibly”.

But Spicer felt “there’s a bigger principle here”, and wrote a piece for the Telegraph arguing that children in modern Britain are too restricted.

He would “absolutely” encourage his daughter to set up another stall, and “I’d encourage other people to go and do it as well. It’s a great way to spend a bit of time with the kids in the holidays, and they might learn something.”

A fitting reminder of the great life lesson: when life gives you a fixed penalty notice, make lemonade.

Anoosh Chakelian is senior writer at the New Statesman.