London, HM TREASURY : Governement Office entrance located 1 Horse Guards Road. Refurbished in 2002. HM Treasury Offices. HM Treasury Offices DOWNLOAD PREVIEW London, HM TREASURY : coat of arms of the Government Office entrance located 1 Horse Guards Road. Refurbished in 2002. Photo Taken On: September 22nd, 2018 guards road,horse guards,office entrance,government office,2002,arms,coat,entrance,government,guards,horse,located,london,office,refurbished,road,treasury,budget,building,department,economy,finance,financial,ministry More ID 127145122 © Eric Flamant/ 1 9 0
Banks fear that a no-deal Brexit would disrupt SME cash flows, triggering loan defaults © Dreamstime

The Treasury has gone “Awol” in recent weeks, ignoring banks’ efforts to co-ordinate an emergency funding programme for small businesses in the event of a no-deal Brexit, according to senior industry figures.

Three senior bankers said the Treasury had ignored requests from banks to provide support for small and medium-sized enterprises, despite fears that a disorderly exit would disrupt SMEs’ cash flow, triggering a sharp increase in loan defaults across the sector.

A senior banker at one high street lender said they were “staggered” by the lack of engagement from government compared with previous crises. “We spoke to them and suggested a government-backed scheme to tide people over — they nodded wisely then did nothing.”

Small and medium-sized businesses, defined as having fewer than 250 employees, account for about half of the UK’s private sector revenues and 60 per cent of jobs. But banks fear that most have made few preparations for next month’s departure from the EU.

“We can provide liquidity and help with planning but there’s a point at which we’re not allowed to lend any more. We can’t cross that line,” the banker added.

A board member at another large bank said it had proposed strengthening existing mechanisms such as the enterprise finance guarantee, which provides a government guarantee on loans to businesses that don’t have enough security to meet lenders’ normal requirements, but heard no feedback.

One senior banker expressed shock that the government was not reviving the kind of emergency measures implemented in the 2008 financial crisis. “If we have a hard exit, they will need to pull out all the stops,” the person said.

Tens of thousands of small businesses collapsed when banks pulled overdrafts and loans during the 2008-9 recession.

Vince Cable, the Liberal Democrat leader and former business secretary, said the Treasury should act to avoid a repeat of these bankruptcies. “It would be disaster if it happened [again],” he told the FT at a business event in Kendal, Cumbria. “They would need to activate the guarantee schemes we had [in the coalition government].”

In 2012 the Treasury provided a £20bn guarantee to banks for their small business loans, allowing them to lend at cheaper rates.

The Treasury and Department for Business, Energy and Industrial Strategy have been working with trade group UK Finance and representatives from other industries to create a centralised source of advice and information for small businesses, according to two people familiar with the plan. Details are set to be announced in the coming weeks, but it is not expected to include more radical financial provisions.

Some banks have already taken steps to minimise disruption for their business customers, such as providing facilities allowing them to pay for large volumes of supplies in advance. Royal Bank of Scotlandset aside £2bn in funding to deal with the uncertainty last October, though it also took a £100m impairment charge in expectation of a rise in defaults.

The Treasury said it had “regular engagement with banks and other financial services providers”, but said the results of the Bank of England’s most recent stress tests showed that banks “are prepared and strong enough to continue to serve UK households and businesses even through a disorderly Brexit”.

They added that the government was “focused” on securing an exit deal and several bankers suggested the Treasury was reluctant to make a no-deal look more likely by engaging with executives too much.

“[Chancellor Philip] Hammond and others have been doing these CEO-level calls at critical junctures where they’re very clear to say they’re trying to avoid a no-deal — the issue whether or not people have been satisfied with that degree of certainty,” one of them said.

Sir Vince said small-business finance had largely been fixed since then but the sector was still reliant on the big five high street banks. “Peer-to-peer lending has taken off but it is still small. It is improving but it is an unregulated market. There is a risk of problems there if the economy got into difficulties.”

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