Nicky Morgan, chair of the Treasury Committee, has criticised the Government for “burying its head in the sand” over protecting small businesses from being exploited and mistreated by banks and other lenders.
The House of Commons Treasury Committee in October called on the Government to create a financial services tribunal to provide redress for small and medium-sized enterprises (SMEs) from being unfairly treated by financial services firms.
SMEs accounted for 99.9% of all private sector businesses at the start of 2018 and 60% of all private sector employment. They had a combined annual turnover of £2 trillion and accounted for just over half of all private sector turnover, according to the Department for Business.
In its report on SME finance, the committee previously said commercial lending to small firms was “mostly unregulated” under the current regime, which was failing businesses.
However, the Government said it “does not believe that there is a clear case for bringing SME lending into regulation, as there would be a number of direct and indirect costs associated with such a move”, adding that the financial services industry has “changed significantly” since the period following the financial crisis.
In response to the committee’s report, the Government said it prefers an ombudsman-style approach rather than a tribunal as an ombudsman applying a “fair and reasonable test” on the circumstances of a case is “more likely to lead to better outcomes for SMEs than a tribunal’s more legalistic approach”.