At PMQs the other day in parliament Cameron said (5 mins 10 secs):
This is one of the schemes to ensure that banks are lending alongside the Merlin scheme, which is actually seeing an increase in lending to small businesses.
This gave me cause for concern. I’d only recently read the October 2011 edition of the Bank of England’s quarterly Trends in Lending, and I knew from the figures given there that the rate in the growth of the stock of bank lending was negative for all sizes of business, but that it was most negative for small businesses. In addition, just the day before the Daily Telegraph had also reported on more recent Bank of England figures showing reduced lending to small businesses.
I therefore assumed that Cameron was simply telling lies, and said so. Well he does have form.
I was puzzled, though, that no one else had picked this up, and emailed Jim Pickard at the FT to query the issue with him. Jim came back to me within minutes, saying the figures he’d seen suggested lending was indeed rising. Further puzzled but busy, I decided to have a proper look this weekend.
It turns out Cameron has used data from the five banks signed up to Project Merlin, and provided to the Bank of England specifically for the monitoring of the Merlin agreement, signed in February 2011. The most recent report under this agreement indicates that ‘gross lending facilities’ to UK businesses increased from £47.3bn in 2001 Quarter 1 to £ 53.0bn in Quarter 2 (of which lending to SMEs was £ 16.8bn in Q1 and £ 20.5bn in Q2).
All good so far for Cameron.
However, in the very same report the Bank of England states that, by ‘an alternative measure’, gross lending by these same banks (plus Nationwide) FELL from £ 26.7bn to £ 25.1bn in the same quarters. This fall is compatible with the (negative) rate of growth figures set out in the Trends for Lending report that I had read, and is clearly from the same source data (note 5 of the Project Merlin report for confirms this).
Two questions then arise. First, why is there such a discrepancy in the two measures, both in terms of trend and actual amounts. Second, why are banks going to the expense of providing separate data for the Project Merlin report when they already provide the same data to the Bank of England for the longstanding Trends in Lending report.
The answer lies in the footnotes. Note 2 of the Project Merlin report says that for Project Merlin purposes:
Data include ‘rollovers’ of facilities, though the extent to which rollovers are included varies across banks.
Note 7, however, reports that for the longer standing Trends in Lending reports:
Data generally exclude gross lending resulting from rollovers of facilities.
This is a vital distinction, because from this it appears that rollover lending (actually called ‘refinacing’ in the Merlin agreement) makes up around half of all the banks’ lending. Rollover lending happens for a variety of reasons, but in general it’s about maintaining business stability, and enabling businesses to cope with continued bad trading times in the expectation that things will pick up.
What rollover lending not, in general, is lending aimed at investment, growth, and job creation.
What appears to have happened, therefore, is that the banks have struck some kind of deal with the government which allows them simply to carry on as before, while looking as they are meeting the responsibilities they accept under Merlin, namely:
In entering this agreement, the banks explicitly recognise their responsibility to support economic recovery (Merlin Agreement, summary).
The banks have managed this this by agreeing to what is, technically at least, an entirely superfluous monitoring regime (see para 1.6 of the agreement), which allows for the inclusion of data expressly excluded from the statistics which are already gathered by the Bank of England under its existing Statistical Code of Practice.
This is how, in a nutshell, Cameron is able to say, with a straight face, that bank lending is up under Merlin, while in the real world businesses are being starved of the credit they need to drive real growth, something even the Daily Telegraph recognises when it seizes on more reliable Bank of England data:
According to the Bank, lending to small businesses fell by 5.1pc in August, against an overall decline in corporate credit of 3.4pc.
It’s why, in the real world, most businesses will have seen absolutely no change in the way their bank’s relationship managers go about their business, despite an express commitment by the banks at para 1.4 of the Merlin agreement:
The above statements [about commitment to lending] will be transmitted to the five banks’ UK relationship managers indicating the banks’ desire and intention to increase lending to viable borrowers and to deliver increases in both gross and net lending.
The final question is why the government is letting the banks get away with this. Is it just another example of simple incompetence, of the type identified by Chris Dillow? Are the banks simply pulling the wool over the government’s eyes?
Or perhaps there a more sinister interpretation, more in keeping with Sunny’s thesis:
We’re in this economic mess because Corporatism reigns. Companies have far too much power and are deemed ‘too big to fail’. They work with and bribe (sorry, ‘lobby’) politicians to draft legislation in their favour.
It’s often difficult to decide what is cock-up and what is conspiracy. The key thing about secret deals is they are secret, and even when the details of the deal are exposed, the motivations can remain hidden.
Even so, in the same week when it was discovered that Osborne has been telling the banks in secret that he’s opposed to the Financial Transaction Tax, while stating in-principle support in public, I think the most likely explanation is one of deliberate connivance between banks and government to arrange the Merlin deal in this way. The apparent duplication of data collection, alongside the fact that Bank of England staff seem so keen to highlight the two different measures in their Project Merlin report (perhaps frustrated at what’s going on while their civil service position means they cannot speak out more openly) are two giveaways.
As Sunny says in his piece, ‘perfect competition’ capitalism depends on perfect information. Under the post-neoliberal New Conservatism, where naked class power has come to the aid of a broken neoliberal ideology, the information citizens are being provided by the state is not just imperfect.
It’s a deliberate tissue of lies.
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