Another rule for banks

That is exactly how I feel the UK’s banks are behaving right now during the Covid-19 pandemic as millions of people and hundreds of thousands of businesses find themselves facing financial ruin, closure and even bankruptcy.

It was only 12 years ago at the start of the financial crisis in 2008 that the banks themselves – in a situation of their own making, let us not forget – were going to the UK government cap in hand asking for help.

 The banks made it extraordinarily hard for businesses to access these loans in a time of crisis

The government gave the help they said they needed, because the feeling at the time was that the banks could not be allowed to fail. It was unthinkable, impossible, it would create such a level of damage to the economy that we would struggle to recover from it. And we did, to be fair.

The years of austerity that us taxpayers endured as a result of those hefty bailouts had barely come to an end before the Covid-19 crisis hit.

However, we did it. We were ‘in it together’, as it were.

There were also some people who had undoubtedly benefited from the way the banks had been operating. For example, some people on self-certification mortgages were clearly unable to qualify for some of the loans they received to buy property.

But they got them just the same, and the properties they bought with them saw their prices rise over time. Yes, there was a property crash that followed the crisis, but it was relatively short-lived.

I do not mean to denigrate anyone who really suffered during that period of time, either, because to be at risk of losing, or to actually lose, a home is quite possibly one of the worst things that can happen to you.

Yet, there is no question that even if you became a property magnate in the years that the banks were playing fast and loose with the rules and packaging up their securitised loans, you still would not have benefited anywhere near as much as the banks themselves did.

So, fast forward just over a decade to now as we all try to navigate the Covid-19 crisis and what it means: not just in terms of whether or not we can see our friends and family without having to wear a hazmat suit, but for businesses and individuals who are finding themselves on the wrong side of the financial impact.

Around a quarter of UK employees have been furloughed in the UK, according to figures from HM Revenue & Customs.

Some 800,000 businesses had laid off staff temporarily as at May 3, with the cost of the government’s furlough scheme expected to be £39bn between March and June, according to figures from the Office for Budget Responsibility.

Chancellor Rishi Sunak has now extended the scheme to the end of October as it becomes clear the impact of the Covid-19 lockdown will be far reaching, both economically and socially for the UK and other countries around the world.

This furlough scheme is just one of the ways the government is helping to support the economy.

Another key way was by providing loans to businesses that were viable before the crisis so they could continue to survive while it plays out. These loans, as would seem to make sense, were supposed to be passed out by the banks.

Now, this money – which is as near to interest-free as it gets because the Bank of England base rate is currently 0.1 per cent – was intended to be passed onto businesses at low rates so they were able to take the loans, get back on their feet and start trading again as soon as allowed.

Instead, the banks made it extraordinarily hard for businesses to access these loans in a time of crisis, and anecdotally rates being offered were as high as 30 per cent.  

Business owners were also being asked to put their own properties up for collateral against the loans. If this is not a perfect example of a rule for one and one rule for another, then I do not know what is.

So, now the government has stepped in again, backing the Bounce Back Loan Scheme 100 per cent, so the banks are not taking any risks in lending to businesses.

Yes, you know, the banks that had no problem taking huge risks previously that resulted in us, the taxpayer, standing behind them before. Well, here we are doing it again.

I do not normally get so frustrated by the mechanisms of capitalism, I appreciate that there are difficulties on all sides and that the banks were asked to repay their own bailouts over time.

Many have done so and completed payments that gave the government – or taxpayer – interest on that money too. That is how the economy works.

But to have forgotten so quickly how they had to swallow their collective pride and ask for help, that they are unwilling to give other businesses finding themselves in a similar situation now – which has nothing whatsoever to do with their business practices – sticks in my throat.

I only hope that when the dust settles on all of this, there is an investigation into who did what at each bank in relation to these loans that should have helped businesses at the very beginning, and appropriate action is taken.

But I am not going to hold my breath.

Alison Steed is a freelance journalist