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Vince Cable threats at higher taxes if banks fail to lend to SME

June 8, 2011‐ United Kingdom

Vince CableThe UK Banking media was full of news after Vince Cable, the Business Secretary, said that the Banking sector will have to face higher taxes on their profits if they fail to lend to back small and medium-sized enterprises (SME).

Vince said that not lending to the SME segment is a serious problem. The Project Merlin agreement forces 4 of the top UK banks to lend £76bn in 2011 to SMEs.

The UK Government is of late coming under pressure with the members of a Commons committee asking the Government to address the fears of top 5 UK banks falling short in their lending commitments to the SME segment.

Vince is reported to have told the House of Commons business, innovation and skills committee that the Chancellor George Osborne and the Prime Minister David Cameron are clear that if they do not get the results, they will take further steps including tax on banks.

Project Merlin an agreement between the British Government and four major UK banks - Barclays, Lloyds Banking Group, the Royal Bank of Scotland and HSBC. The agreement was announced in February 9, 2011 under which banks have agreed to lend about £190bn to businesses during the year 2011. £76bn of this is ought to go to small firms. The Project Merlin intends to bridge the gap between the Treasury and the banks on some key issues such as bonuses and lending.

It appears that Vince's use of the term aimed towards an industry-wide taxation of profits and bonus taxes was because of the Government's inability to 'penalise individual banks' the banks of the Merlin agreement alone. He said, 'We do have the option of approaching the taxation of profits or bonuses or balance sheets in a more forceful way - that's certainly is one of the sanctions open to government'.

Banks have reported to have reacted in a mixed fashion at the threat from Vince. They seem to be divided over the idea of ring fencing retail operations.

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