It seems that yet another coalition growth scheme is falling flat on its face: this time, Sir Mervyn King’s ‘Funding for Lending’ brainwave. The theory was that the Bank of England would lend money at below-market rates to the financial institutions: sub-prime loans, in other words. Not without its risks: chiefly, what if the banks just use this cheap cash to lend more to their safest borrowers, rich guys with big deposits? Don’t worry, Sir Mervyn said, the Bank would monitor every month and report back. It just has, and Citi Research has chewed the results (PDF).
Rather than ‘get the banks lending’ the first four weeks of Funding for Lending has seen consumer lending drop by £400 million, and mortgage growth is now the lowest since data began almost 20 years ago. Lending to companies has done no better, falling £2.2 billion in August. Supply of credit to British companies has now been falling for 40 consecutive months. As for mortgages, they’re actually getting more expensive. The average fixed rate mortgage rate rose by 0.03 percentage points and is up 0.52 points this year so far. That said, a few well-paid people I know have reported getting brilliant fixed rates. Those with sufficiently large deposits seem to be doing very well, but these are not the people who need help.
It fits a depressing trend. Nick Clegg’s ‘regional growth fund’ saw just 2,442 jobs created for the £470 million spent so far out of the £1.4 billion set aside — much of the cash has ended going to up big companies, who see a great scam for getting cheap money. The BoE’s own assessment (PDF) says Quantitative Easing may have ended up making the richest 10 per cent of households better-off by six-figure sums, while making the poorest tenth worse off. It’s still very early days for Funding for Lending, and things may get better. But the earliest indications suggest that yet another policy intended to help the strivers may end up subsidising the rich.
UPDATE: A friend whose opinion I respect emails the following criticism:-
It’s absurd to judge FLS on one month of data. It was always going to take a bit of time to feed through and all the indications (eg the Bank’s credit conditions survey) are that it is beginning to. It’s a straightforward piece of monetary policy responding to rising bank funding costs due to the eurozone crisis, not some crazy subprime scheme.
Subscribe to The Spectator today for a quality of argument not found in any other publication. Get more Spectator for less – just £12 for 12 issues.