EEF blog

Maybe a state bank isn’t needed just yet to plug a ‘growth capital’ gap for SMEs but perhaps we do need a bank for improving the costs and T&Cs faced by SMEs, especially since the financial crisis.

How might a state bank improve the costs and T&Cs faced by SMEs?

A bank backed by the UK government would face a lower cost of borrowing for itself than commercial banks.

Because the government has the power to levy taxes, provided it doesn’t let spending get way out of control and find itself in over its head in debt, it can usually borrow quite cheaply.

Exactly what too much spending and too much debt looks like will depend on the country in question, its fiscal policy, and general macroeconomic environment. Generally larger and more diverse economies can get away with higher deficits and debt levels than smaller and less diverse economies.

So, a state-backed bank would benefit from this cheaper cost of raising debt – maybe even the low cost associated with a AAA rating such as the UK government currently enjoys (for the moment).

The state bank could then pass on its own cheaper cost of funds to its SME customers. This would allow them to borrow for less than would otherwise be the case if they borrowed from commercial banks.

On top of this, the government (or the bank itself from retained earnings) might decide to go even further and provide explicit subsidies for the loans (or some of the loans) from its bank.

The combination of passing on a cheaper cost of borrowing and providing explicit subsidies is what the Germans’ KfW does.

A state bank, depending on how it was constituted, could also go further and start altering some of the conditions attached to loans e.g. it could make it easier for SME borrowers to secure a loan without offering a personal guarantee.

But is creating a new state bank the best option for the UK to bring down costs and onerous T&Cs for SMEs?

The borrowing of the state bank would, I think, add to Public Sector Net Debt (PSND). Adding billions to PSND when the government has a target to have PSND falling by 2015/16 seems like something the government isn’t going to be keen to do, at least in the short term. Hence they haven't let the proposed Green Investment Bank borrow until this target is met.

In fact, a higher PSND and/or violation of the commitment to have PSND falling in 2015/16 might have negative implications for the government’s credit rating and therefore the cheaper cost of funds the state-bank would benefit from anyway.

Because the offsetting assets (the loans to companies) aren’t readily convertible to cash, it would only be the liabilities not the assets that score on PSND (I think).

And if the government is standing behind the bank it will also create a potential liability for the event where the bank goes bust.

We all now know banks can and do fail – and there would be no backing out of bailing out this new state bank if we wanted it to be able to borrow cheaply.

Arguably a state bank that lends to companies that are unable (or unwilling) to borrow commercially is lending to a riskier set of companies.

The above only relates to the pass through of lower funding costs – let alone subsidies from the government (the German Government forked out €3 billion in subsidies to KfW in 2010). It could be worth it in terms of CBA - but it would seem to run counter to the government's fiscal stance and would therefore require massive offsetting spending cuts or tax rises if it were to happen now.

A state bank doesn’t seem the obvious solution, at least in the short term, to try to tackle high costs and onerous T&Cs on lending for SMEs.

But that’s not to say that nothing should be done…

10 days ago I blogged on the range of problems a state-sponsored bank is being touted to address by its various supporters.

Today I’m going to focus in on the problems we’re most interested in and start testing whether a state bank is the best solution.

If anything, this has got even more topical following the [re]leak of a Vince Cable letter during our National Conference last week, which mentions using the government’s shares in RBS to force that bank to lend more to SMEs, and Labour, also at our Conference, seem to be coming out more strongly in favour of a British Investment Bank.

The main problems we see in access to finance are:

• Lack of growth capital to fast-growing SMEs;
• Costs and T&Cs on lending to SMEs through the banking system;
• Lack of availability of alternative sources of finance.

Is a state bank the answer to the lack of growth capital for SMEs?

After WWII, the Bank of England and the major UK banks of the day created the Industrial and Commercial Finance Corporation (ICFC) to provide growth capital to SMEs. ICFC later became 3i.

The idea was to provide SMEs with a patient source of capital (either debt or equity) that they could otherwise not access being too small or lacking sufficient assets to access capital markets directly. This is an important but small subset of all SMEs – an important point when considering the scale of the institution.

As time went on though, 3i started to drift from its original mandate towards producing more commercial returns, inevitably focusing on larger deals where the costs per deal were lower and returns per deal higher.

Eventually the banks sold out of their shares in 3i, which became a publicly listed company on the LSE in 1994.

However, the original gap that 3i was set up to address remains – most recently re-confirmed by Chris Rowlands growth capital review of 2009.

So on the face of it there may be a case for some kind of institution to address the growth capital gap today. And indeed the last Labour Government and (briefly) the Coalition contemplated such an institution that was to be called the Growth Capital Fund.

This Growth Capital Fund was to be far from a state bank. It was to focus on a particular gap in the market where commercial lenders are not supporting a subset of SMEs – identified as firms with turnover of up to £100 million looking for £2-10 million in patient investment capital.

The GCF would structure its investments as ‘mezzanine finance’ – a broad term capturing structures in between debt and equity. The thinking here was to counter the well-documented SME aversion to raising new equity.

The GCF however was dumped. This was mainly because the banks were reluctant to chip in funding (would be interested to know why this was) and instead independently decided to set up their own ‘Business Growth Fund’.

The Business Growth Fund is a £2.5 billion equity fund targeting the same growth capital gap identified by Rowlands. Although the BGF has a lot going for it, particularly its patience for returns, the one part of the Rowlands Review it has not followed was the deal structure – equity rather than mezzanine.

Seemingly the government has recognised that something remains to address. Complaints on access to finance by SMEs and a disappointing business investment performance in 2011, even as firms build up cash reserves seem to be prompting further action.

At the Autumn Statement it included a £1 billion pot of Business Finance Partnership funding under its ‘Credit Easing’ announcement for non-bank lending channels to mid-sized companies.

We’re pushing for some of this funding to support investments in supply chains where growth capital is difficult for some growing SMEs to secure. Government announcements on the first round of the BFP are due at (or perhaps before?) the Budget.

The two strands of action above from the banks and the government may well prove to be insufficient to address the growth capital gap in the UK. But it does suggest to me that we might want to be cautious before falling in whole-heartedly behind a state bank until we at least know what impact these interventions are having. A state bank to this problem is not yet an obvious solution.

There’s been a lot of talk about the need to create a state banking institution.

Industrial banks, national investment banks, SME banks, regional banks – and the government’s mis-labelled ‘green investment bank’ are all the subject of regular debate.

Why is this happening?

The common element in all these diverse ideas is that people feel our current financial system is not allowing finance to get to where it needs to be either to support the level of growth or the type of growth our economy needs. But we need more detail on the specific finance problems our economy faces to see how good a solution a state bank is for all or indeed any of them.

Some people point to the inadequate supply of capital to support growing SMEs. Various reports from the 1930s (McMillan) or 50s (Wilson I think) right up to the 00s (Rowlands) point out that for a certain group of established SMEs, the market does not provide sufficient capital to support growth that may otherwise occur.

This is a particular subset of all SMEs. The Rowlands Review from 2009 suggests its companies of £5-100 million turnover looking for £2-10 million in patient, preferably debt capital to fund investments to grow i.e. not very small start ups and not larger mid-sized businesses where other options may be more appropriate.

Then there are the terms, conditions, and costs of lending. This affects a wider group of SMEs. Here we’re talking about fees, covenants in lending agreements, for personal guarantee requirements and so forth.

These problems are a bit stickier than the growth capital supply gap, as in some cases there is a lot of noise about what happens to SMEs even though banks are not necessarily being unreasonable. Some inappropriate lending pre-financial crisis has to be wound back.

A large degree of noise around these issues from poor customer service also unhelpfully muddies the water.

That’s not to say there isn’t an issue here to address but it’s not a straightforward case of it all being the financial sector’s fault.

Next there are problems associated with supposed misallocation of resources by markets. This is the idea that only 15% of the UK financial sector’s investments over the ten years before the financial crisis went into non-financial companies (excluding property companies). The spectacular crash of 2007-09 next to the finance-starvation of the productive sector ‘proves’ the financial sector must have been backing the wrong horses.

These problems could be as general as needing to see more finance flow into the ‘real economy’ to as specific as certain sectors e.g. manufacturing need special attention.

This is quite a different set of problems from the other two in that it is a fundamental questioning of how financial markets are working and the incentives inherent in them as opposed to more specific inadequacies in a system that is otherwise sound.

The last set of commonly mentioned problems relate to an underinvestment in technology and infrastructure, especially environmentally focused technology and infrastructure. This is the rationale behind a ‘green investment bank’.

I think these issues are actually less about the functioning of the financial sector than they are about externalities that are not being priced in the market.

So my first point in testing whether a state bank is an obvious thing to bring in is to say that with such a variety of problems to address, does it seem likely that a state investment bank will fix them all? Such an institution would have to be quite versatile and adaptable...not a noted feature of state entities.

The financial crisis and recession hit the UK hard. The recovery in output for the overall economy has been painfully slow. UK manufacturing has seen a stronger rebound but a lasting scar from the financial crisis is the fractious relationship between the manufacturing and the financial services sectors.

EEF’s quarterly Credit Conditions Survey has consistently recorded a balance of companies reporting an increase in the cost of credit since the onset of the financial crisis, particularly in terms of costs outside of the headline interest rate. The Bank of England has slashed Bank Rate but margins to SMEs have widened considerably i.e. the full benefit of this reduction is not being passed through.

Business-bank acrimony is a discussion topic that doesn’t seem to be going away. This week we had the final release for the Project Merlin agreement where the UK banks made available £215 billion in lending to UK private corporations (excluding other banks) in 2011. However, critics have pointed out the flow of net lending (gross lending extended by the banks less repayments made) to private non-financial corporations actually contracted by £9.6 billion in 2011.

And today the OFT appears set to turn up the heat on the UK banks.

Clearly there are both demand and supply factors at play. Companies are cautious about borrowing because of the economic climate. Many are understandably keen to pay down debt rather than take more on. But supply side factors, including cost and availability of finance, are not helping.

It seems like every second manufacturing SME around the country has a horror story to tell about how the financial sector – and banks in particular – was not supportive when their company needed them most. The result appears to be distrust.

Worryingly this distrust seems to be extending to the point that some SMEs are now choosing to opt out entirely of using external finance to support either their investment or their working capital. The proportion of EEF’s member companies identifying no borrowing needs has steadily drifted up from the low 40s in 2009 to nearer to 50% in 2011q4.

We asked in 2010 how many of our members used only their own retained earnings to fund their expansion; at that time the proportion was 18%. I fear that this has now increased and cannot be positive for growth for the sector or the wider economy.

UK manufacturing needs a strong and supportive financial sector. At a time when the economy is in desperate need of strong business investment growth, the government and the financial sector need to be doing all that they can to relieve credit constraints on businesses looking to grow.

Remember that the government is relying on OBR forecasts of 7.7% growth in business investment this year to drive overall growth. In March 2011 they forecast 6.7% growth in business investment in 2011; that forecast has now been cut to -0.8%. We don't want a similar story in 12 months.

One of the avenues being pushed hard by the government and by the big banks through their Business Finance Taskforce is increasing the supply of alternative sources of finance outside of traditional bank products like overdrafts and term loans.

That’s why at next month’s National Manufacturing Conference there will be a workshop specifically looking at alternative sources of finance. The workshop will be an opportunity to showcase some of those alternative sources of finance that are gaining greater prominence with presentations on asset finance from Lombard, growth capital from the Business Growth Fund, and the suite of government-backed funds managed under Capital for Enterprise.

It will also present an opportunity for delegates to press a panel of experts on how they find out about sources of finance outside of traditional bank lending as well as putting out some challenges as to where the gaps remain. For more information about the workshop and our conference in general visit http://www.manufacturingconference.co.uk/

On Monday 19th the government will announce its response to the Independent Commission on Banking's recommendations. All this week Andrew has been blogging about the challenges UK companies are facing around accessing the finance they need to grow; and what the government and the banks are doing to address this.

There have been encouraging moves on the part of government and banks, but we have long argued that increasing competition in the banking sector is a key part of improving access to finance. Vickers’ recommendations – as well as those around the more publicised ring-fencing measures – laid out steps that could be taken to improve competition.

It is crucial that government responds positively to these recommendations to enhance competition in the banking sector and thereby aid access to finance.

The key recommendations are:

1. Improve market structure by creating the conditions for a strong new challenger, and reducing barriers to entry

2. Improve choice by easing switching and transparency

3. Pro-competitive regulation

1) Improving market structure

The ICB report states that strong “challenger banks” have the potential to exert pressure on incumbents, but there has been a reduction in “challenger banks” following the financial crisis, which has reduced competition in the banking sector.

While improving the ability of customers to move banks (more on this later) is an important step, the ICB write that this is likely to have a modest effect, and only make a difference in the longer term.

What is crucial is the development of strong new challenger banks

“in order to deliver a significant effect in the near to medium term it is highly desirable to secure the emergence of one or more strong new challengers”

Part of the process of improving competition is the Lloyds divesture, or ‘Project Verde’. Co-op has been announced as the preferred bidder for the Lloyds branches, and the business has the potential to be a genuinely strong contender.

However, the second part of the recommendations on market structure was to reduce barriers to entry for new contenders.

This blog from Robert Peston explains, NBNK, another company looking to buy a bank was put at a disadvantage in the Lloyds divestiture process because of its regulatory status. Peston adds that due to risk-aversion at the FSA it is unlikely NBNK will receive advanced status on any set timetable. Not only is this problematic for NBNK, but also for any other potential new entrant to the market.

2) Improving choice and transparency

We have previously blogged about the impact that a lack of competition between banks has had on manufacturers.

Improving customers’ ability to move between banks could help exert competitive pressure. But neither switching nor finding the requisite information to make a switch is easy.

It needs to be easy to move banks and switch accounts. Positively, banks are already taking steps to address this, but so far most of the focus has been on current accounts. It must be recognised that companies often have multiple products with a bank – and in many cases these products are bound up together – so there may need to be further action allowing companies to pick and choose which products they want to have with particular banks.

3) Pro-competitive regulation

The ICB report argues that ongoing reform of the financial regulations presents an opportunity to change the nature of regulation in a way that enhances competition and consumer choice. The report recommends giving the Financial Conduct Authority (FCA) a primary duty to promote competition in the financial sector.

Finally, the ICB report also lays out three conditions which – if they are not met by 2015 – would warrant a reference to the Competition Commission by the Office of Fair Trading. These are: the Lloyds divestiture resulting in a strong challenger; if ease of switching banks is enhanced; and the FCA has been established and is making progress towards improving transparency and reducing barriers to entry.

We will be looking for a positive response on these points when government announces its response to the ICB's report on Monday. 

The second BDRC SME Finance Monitor was released today showing that demand for finance may be easing as SMEs become increasingly concerned about the economic outlook. However, of SMEs described as ‘would be seekers’ of finance (12% of the sample) the main reason cited for their not having applied for finance was being discouraged for fear of being turned down by their provider. This discouraged factor clearly is directly suppressing demand.

Other findings included:

• Over the wider set of results including the first release of the SME Finance Monitor in July, 63% of companies overall were granted new/renewed loan requests but worryingly being in the manufacturing sector made a decline more likely;

• 37% of new/renewed overdrafts granted to manufacturing companies required security compared with 25% for the overall sample;

• Half of businesses approached by their banks to cancel/renegotiate their facility were given no reason why.

What this says to me is that there’s still a way to go on improving access to finance.

The banks and the BBA deserve credit for creating the Business Finance Taskforce and the SME Finance Monitor in particular is adding a considerable volume of data to the debate on the lending conditions faced by SMEs in the UK today.

But some of the other actions are clearly taking some time to bear fruit with the bruised relationship between companies and their banks no exception.

Hopefully the new Lending Code and lending principles, the appeals process that the banks have put in place for declined lending applications will start to build up trust with businesses in the near future.

Looking at the picture generally, it’s perhaps not surprising that the outlook on demand is weighing heavily on firms’ willingness to borrow. Europe is perhaps in its worst crisis since WWII and investor and business confidence is falling off a cliff.

But we can’t directly change the situation in Europe.

We can act to change our own business environment.

Too many companies are still put off by how they perceive their providers will treat their requests for finance. It’s also particularly concerning that manufacturing companies seem to be at the sharper end of struggles to access finance.

We know the government is already concerned at the state of access to finance with work on its credit easing plans clearly targeted at improving the situation.

The Autumn Statement on 29 November gives the opportunity for the government to set out clearly its ambition for making the UK a great place to start, grow, and finance a business. In particular it could:

• Indicate its general agreement that competition in the banking sector needs to increase (with a more detailed response to the Vickers report before the end of the year);
• Support ways to increase sources of both debt and equity finance outside of banks;
• Continue to press for better business-bank relations.

On Tuesday I wrote about tax and yesterday Felicity set out our views on skills policy. These are two of four priority areas for reform we identified in our submission to the government in advance of its Autumn Statement.

The third priority area for reform, as nominated by our members, is access to finance. We survey our members every quarter on credit conditions and since the financial crisis both the availability and cost of credit have consistently been issues, particularly for smaller companies.

There’s been much ink spilt on this particular subject given the banks had their paw prints all over the financial crisis – and now it seems, to some, that the same banks are holding businesses back from getting the finance they need to grow.

What we’ve consistently tried to do in commenting on access to finance is avoid being sucked into the debate about who’s to blame or whether the problem is supply or demand (we see it as both).

To be frank this debate continues to generate a lot of heat but not much light. Instead our interactions with the government and the banks themselves have focused on solutions not recrimination.

For us it comes down promoting greater depth and breadth of competition in the financial sector – to generate a better service for the economy and businesses looking to grow.

The banks receive a lot of the coverage and we have our views on that segment of the sector. We endorse Sir John Vickers’ recent report on reforming the banking sector and in particular want to see the government come out and strongly support the recommendations for enhanced competition. If you haven’t read Sir John’s report, this specifically means:

Enhancing the Lloyds divestiture to include a higher proportion of current accounts, higher quality of branches, with a lower reliance on external funding – therefore placing a new challenger bank in a good position to take the incumbents;

Making it easier to switch accounts between banks by 2013.

But progress on access to finance means going beyond just the banks. For many businesses prior to the financial crisis cheap bank debt became the answer to all their external finance needs.
This reliance was out of synch with the risk some businesses posed and had a detrimental impact on other segments of the financial sector as they were crowded out by the banks.

We now need to see a strong re-emergence of funding sources outside of banks. These need to be on both the debt and equity side.

We have been encouraged by action taken by the banks in setting up the Business Growth Fund, a new £2.5 billion equity fund for growing businesses looking for capital of £2-10 million.

And it was positive to see the government extend the generosity of the Enterprise Investment Scheme (EIS), a tax incentive for individuals looking to make equity investments.

But we’d like to see this action extended to encouraging further provision of non-bank debt – especially important given SMEs well-known aversion to equity finance.

That’s why our submission includes two specific calls:

Encouraging the banks to extend their Business Growth Fund to cover debt investments;

Extending the EIS to cover private debt placements, as the government is proposing to do with its new scheme for encouraging Business Angel investments.

Monday morning saw the long-awaited release of the Independent Commission on Banking’s Final Report on reforming the UK banking sector following the financial crisis.

In the lead up to the release we were doing our best to make a lot of noise regarding the Commission’s recommendations on increasing competition in the sector.

This is because we consistently hear from our members that there isn’t any real competition in the UK when it comes to SME banking services.

Too often terms and conditions, rates on loans, service standards, and covenants in lending agreements are nearly identical between the major banks. While accepting some of the forces driving costs for banks will be the same, surely in a competitive market we would expect some variation.

Even more ridiculously we’ve heard stories of a major UK bank refusing to even quote business for a £20 million turnover, profitable company and another major bank deciding it doesn’t want to deal with our defence industry.

Now these may prove to be isolated cases – but even if they are, it’s hardly indicative of banks straining at the leash to provide great service to the real economy.

Our efforts at drawing attention to this culminated in our chief executive, Terry Scuoler, together with the heads of other major business organisations writing an open letter on 10 September urging the government to reform the competitive landscape in UK banking as a matter of urgency.

This is all the more relevant given the government’s increasing alarm at the global economic situation and the impact it may have on the UK’s growth.

Indeed the lobbying leading up to the publication of the ICB report focused a lot on the risks of implementing tough proposals on ringfencing at this moment, given the fragility of the economy.

The concern expressed was that tighter requirements on the banks would further constrain the banks’ ability to lend to businesses.

And the government (and perhaps the Commission) seemed to take these concerns seriously.

So it’s a little surprising in this context that more hasn’t been more made of the need to increase competition as a matter of urgency.

Action here is not about increasing costs for the banks and could provide short-to-medium term support for growth via downward pressure on the cost of accessing external finance.

Predictably perhaps, the press focus has been on the ringfencing side of the Commission’s recommendations. The cost to the banks. The comparison with other countries. Relatively few mentions of competition.

As for the government, so far we’ve had the Chancellor of the Exchequer welcome the recommendations on enhancing competition from the Commission and saying they are in the country’s interest. That’s good.

But as yet there’s no detailed response and no sense that this is a key concern and connected to the struggles SMEs in particular are having accessing the finance the need to grow on reasonable terms.

In a week where the Deputy Prime Minister has stood up and made the government’s concern on the country’s short-term growth prospects plain, it would seem to me that the time is now to be putting the foot down on competition-enhancing reforms in UK banking.

That title doesn’t make a lot of sense. It was mainly inspired by claims this week that implementing proposed reforms in the banking sector right now would be ‘barking mad’.

The argument goes that this is because the delicate stage of the recovery means we should be doing all we can to assist companies getting the finance they need.

Proposals coming out of the Independent Commission on Banking that call for ring-fencing banks’ high street operations from investment banking or call for increased capital requirements would threaten this flow of finance.

Ergo we should hold off on these reforms. At least for now.

Unfortunately, some important aspects of the reform debate don’t seem to be barking at all, not even whimpering in fact. A mention or two might help the situation.

Firstly, the flow of finance point. If getting finance to companies that need it is so important why has net lending basically been in continuous contraction since the financial crisis?

Surveys such as our own on credit conditions continue to show that the cost of finance is increasing, not decreasing, for a balance of companies.

And the bank-funded Business Finance Monitor in July showed that the phenomenon of discouraged demand, where companies don’t even ask for finance from their banks for fear of rejection of having their existing arrangements worsened is real – covering 15% of SMEs.

So despite the banks’ Business Finance Taskforce, which we applaud, are we really doing everything we could to improve access to finance now?

But the more important point, raised by John Thurso MP this morning on Radio 4, is the absence in the current debate of the other side of the ICB’s mandate – to provide recommendations for increasing competition in the UK banking sector.

I suppose it’s fair enough that the banks or their lobby groups don’t draw attention to this side of things.

But surely a more competitive banking sector would be a lower cost one for the customer? Indeed if we are worried that ring-fencing or any other restructures designed to make the system safer would drive costs up, wouldn’t one possible response be to double down on reforms to increase competition?

I fear that competition reform is the poorer cousin in this banking debate to the ring-fencing proposal. The ICB’s recommendations haven’t for example even received the tacit support the government gave to ring-fencing earlier in the year.

And yet companies around the country tell us that despite all the possibilities for competition in banking – rates, fees, conditions, covenants, even service – the main high street banks are near uniform in the offers they make to firms.

We need a barking dog or rather more barking dogs than just ourselves (we’ve banged on about this for a while). We need competition-enhancing reforms with the potential to improve access to finance for companies in the UK and this needs to be part of the debate on reforming the banking sector.

Vince Cable’s commented in the Sunday Times on 7 August that it’s the government’s top priority to get lending going again.

It's another timely reminder as we're about to have the Bank of England's release of the 2011q2 results for the Merlin lending agreement out on Friday. As I've said before, Merlin is a positive sign but far from the solution to improving the flow of finance to SMEs in the UK.

But Cable's focus on lending was mercilessly slammed in a blog by the IPPR’s senior economist, Tony Dolphin, the next day. Dolphin’s comments are indicative of the very sharp debate that continues to rage about how best to respond to our current economic difficulties.

Broadly, speaking the coalition’s position has been to prioritise getting the fiscal accounts in order, necessarily reducing government spending and increasing some taxes.

Ministers love to point to bailout basketcases in Europe as an example of there but for the grace of deficit reduction goes Britain.

Convincing markets the government is in control of its accounts is critical to keeping the cost of finance low for the overall economy and avoiding sovereignty-stripping plans being forced on us by the IMF.

The argument is that we were dangerously close to an unsustainable tipping point.

Alternatively, some economists argue that this prescription is wrong for an economy that is still too weak for government spending to be withdrawn.

In fact some argue that perhaps even more government spending is needed to compensate for the shattered confidence of consumers and investors who’ve cut their spending in response to ongoing turmoil.

But whichever argument you subscribe to I would’ve thought it’s almost unquestionable that better access to finance is an important part of any recovery plan.

We need to be doing everything we can to boost investment and exports – a sustainable future basis for growth.

There’s a lot that’s deterring investment right now. We have a great chart showing the divergence between investment intentions (as measured by our own survey) and actual investment (ONS).  It's a divergence that's emerged since the financial crisis and crucially appears for small and medium sized firms only - not larger firms, who have the most options for accessing external finance. The example below is for small firms: 

Many factors will be impacting on this – such as the eurozone crisis, growth concerns in the U.S., or inflation concerns in China. These are all creating uncertainty that is deterring investment.

Those factors are largely outside the scope of the UK to influence. But improving our access to finance landscape is able to be influenced.

Lending to SMEs from our banks is right at the heart of that because they have few options for external finance outside banks.

So wherever you fall in the wider macro debate, I think boosting access to finance has to be part of the policy response and Cable was right to highlight this.