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: Getty
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Cabinet audit: what does the appointment of Liam Fox as International Trade Secretary mean for policy?

The political and policy-based implications of the new Secretary of State for International Trade.

Only Nixon, it is said, could have gone to China. Only a politician with the impeccable Commie-bashing credentials of the 37th President had the political capital necessary to strike a deal with the People’s Republic of China.

Theresa May’s great hope is that only Liam Fox, the newly-installed Secretary of State for International Trade, has the Euro-bashing credentials to break the news to the Brexiteers that a deal between a post-Leave United Kingdom and China might be somewhat harder to negotiate than Vote Leave suggested.

The biggest item on the agenda: striking a deal that allows Britain to stay in the single market. Elsewhere, Fox should use his political capital with the Conservative right to wait longer to sign deals than a Remainer would have to, to avoid the United Kingdom being caught in a series of bad deals. 

Stephen Bush is special correspondent at the New Statesman. He usually writes about politics.