MPs: Treasury must force Lloyds and RBS to lend

The Treasury needs to increase its powers to enforce lending commitments made in return for taxpayer support by part-nationalised banks RBS and Lloyds, MPs said today.

The Public Accounts Committee said there was "widespread dismay" at Royal Bank of Scotland and Lloyds Banking Group's failure to meet pledges to lend to struggling businesses.

RBS and Lloyds agreed to lend an additional £39 billion to homeowners and businesses in the year to this month, but the "legally binding" targets on business lending are not being met, according to the MPs.

"The Treasury does not seem to know why the banks are not lending and had few sanctions available to make them change their minds," said Edward Leigh, PAC committee chairman.

The committee's report says officials need to put in place "effective and enforceable" sanctions before commitments for the year ahead are drawn up.

RBS and Lloyds are 84 per cent and 43 per cent taxpayer owned following massive state bailouts in the financial crisis. RBS has argued that the demand for business loans fell away in the recession.

But the report said: "We remain unclear whether the decline in lending growth is a result of reduced demand, a fall in the availability of funds for banks to lend or a combination of these and other factors.

"The Treasury needs to understand fully the causes of the decline in lending when framing future policy responses."

The PAC said the Treasury remained "extremely stretched" to deal with its responsibilities following the crisis — but should avoid paying expensive retainers to investment banks as well as "success fees" when no criteria for success are laid down.

The report attacked the Treasury's failure to inform the PAC of an £18 billion indemnity given to the Bank of England over potential losses on emergency support to RBS and HBOS for more than a year after the crisis.

The Chancellor, Alastair Darling, kept a lid on the information to prevent the risk of leaks and a Northern Rock-style bank run, but the PAC called the decision "unacceptable".

"In future, and only in very exceptional circumstances, when highly sensitive matters need to be disclosed, as a minimum we expect departments to provide the chairman of this committee with a full oral briefing," the report said.