Report highlights bank lending concerns

28 January 2009

In a report today the Treasury Committee calls for the Government to do more to ease the flow of credit. The Committee’s report on the 2008 Pre-Budget Report highlights the lack of bank lending as "the single most critical problem for the economy in the near term."

Committee Chairman John McFall said:

"The Government must ensure the availability of credit increases quickly, and there is still far more work to be done. Without that increase in availability, the recovery of the economy will be placed in jeopardy. We will continue to use the Banking Crisis inquiry to demonstrate the continuing need for further action on this front."

Given the importance of easing credit flows, the report recommends that the Lending Panel, or a suitable agency of the Treasury, provide regular updates on the actual lending by the banks to the real economy.

The economic forecast

The Committee considers that the balance of risks to the Treasury’s forecast in the Pre-Budget Report, for a swift recovery in economic growth for 2010 after a significant decline in output in 2009, is on the downside. The overall effect of the fiscal stimulus remains uncertain, the report says. The cost of the reduction in VAT is considerable and, in the view of the majority of commentators, the Treasury’s analysis of its impact is an optimistic one, it says.

The report notes that the risk of a self-reinforcing deflationary cycle exists in the UK economy at present and recommends that the Treasury prepare and publish the actions it may consider taking should a period of “quantitative easing” be needed.

John McFall said:

"Interest rates have fallen considerably. Soon they may be unable to fall further. We need to make sure we are prepared for the worst case scenario and make it clear to the public and businesses that the authorities will take firm action."


While the need for lower interest rates to maintain economic growth is crucial at the present time, the needs of savers must not be forgotten. The report recommends that the Treasury consider measures that will also support savers at this difficult time.

John McFall said:

"What sort of message would it send out if we neglect those who have been diligently saving? It is crucial that amid the raft of other measures to get lending going, they are not punished for such diligence. We hope to see the 2009 Budget provide greater support to savers."

Child poverty

The report notes with concern that the Pre-Budget Report contains no policy measures which will significantly advance meeting the 2010 child poverty target. While recognising the fiscal position is strained, the 2010 child poverty target must not be allowed to fall by the wayside, it says.

John McFall said:

"We are disappointed at the lack of progress on the child poverty front in this year’s PBR. The Government must take decisive action in the 2009 Budget if we are to have any hope of achieving the 2010 child poverty target."

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