Manufacturing needs a Bank for Industry

One issue that frequently comes up in discussions with manufacturers is access to finance. Since the credit crunch in 2008, there has been a fall in the amount of finance that businesses have been able to access. In 2007, 90% of all loan finance approaches to banks were successful. In 2010, this had fallen to 65%. Lending contracted in every quarter of 2011 and the Ernst & Young ITEM Club predicts that corporate loans could fall by 6% this year. A great deal of this has been driven by the situation in the eurozone, which has created instability in financial markets and made banks cautious about lending to businesses, even growing ones, in case there are defaults on the continent. This presents a major challenge: without investment from our banks, manufacturing growth will be constrained and we will not be able to create the jobs that we need. The government sought to tackle this through Project Merlin – a deal with the five largest banks to increase lending and to hold them to certain targets. This was a sensible move, but last year they missed their small business lending target by over £1 billion and there is no guarantee that the banks will forever sign up to these voluntary agreements. I believe that we need to create a long-term solution to this issue through a 'Bank for Industry' or a network of smaller regional banks for industry. This could be modelled on the Green Investment Bank and would seek to invest in growing manufacturing businesses which are struggling to get access to finance, provide support for manufacturers to become investment ready and create insurance for loans from commercial lenders to manufacturers so that we facilitate greater lending. In much the same way that the BBC keeps commercial competitors on their toes and raises the standard of broadcasting, a Bank for Industry could do the same – ensuring that manufacturers had access to the credit they need and encourage commercial lenders to support the sector. The Associate Parliamentary Manufacturing Group will be debating this issue in one of our upcoming meetings and I look forward to reporting back in a forthcoming issue of WM.