The government has been urged by prominent Labour backbenchers to introduce legislation that would require banks to expand access to low-cost lending for SMEs.
A private members bill introduced to the House of Commons by Labour MP and former minister Gareth Thomas laid out plans to further combat a weak economy with a mandate for banking institutions to provide reasonable access to funding for underserved entrepreneurs.
“Given the cost of living crisis, we need to unlock far better access to cheap loans for the millions of people on low and middle incomes to help them through the financial emergencies that everyone faces at some point,” said Thomas, “while also making it easier for talented entrepreneurs to find the affordable finance they need to get their businesses up and running.”
Under the proposed legislation, which has been supported by MPs including Liam Byrne, Meg Hillier and former shadow chancellor John McDonnell, banks would be required to measure and disclose how their activities are reducing financial exclusion.
This would include supporting those who have been excluded from affordable credit and “improving access to finance for small and medium-sized businesses”.
The proposal has been cautiously praised by George Holmes, managing director of Aurora Capital, who supported measures to force transparency in banking, but warned against allow this legislation to become a “box-ticking exercise”.
“Banks have long discussed supporting growth, but many small businesses still encounter the same obstacles, especially outside big cities. If this proposal forces lenders to publish the reality of who gets funded, on what terms, and where, that transparency alone is a step forward,” Holmes said.
“The risk is that it becomes a box-ticking exercise. What small firms need is faster decisions, clearer criteria, and credit options that match how SMEs actually trade, including seasonal cash flow and uneven demand.
“If ministers want this to resonate with business owners, they should pair accountability with practical delivery, faster schemes, simpler access, and consequences for banks that continue to shut SMEs out.”
