Written evidence submitted by UK Finance (LRS0010)

  1. UK Finance is the collective voice for the banking and finance sector. Representing more than 250 firms, we act to enhance competitiveness, support customers and facilitate innovation.
  2. We welcome the opportunity to submit evidence to the Business, Energy and Industrial Strategy Committee’s inquiry into levelling up. There is now a concerted effort, from both the public and private sectors, to bring economic performance and wealth creation across the UK into line with London and the south east of England. We and our members strongly support this agenda. A more-even geographic spread of private-sector activity, high-quality infrastructure and skills will make for a more productive economy, higher living standards and a more attractive environment in which to establish and grow a business.
  3. This submission highlights the centrality of small and medium-sized enterprises (SMEs) to efforts to level up the UK economy and the need to address regional disparities in their access to business advice and equity finance. It also provides a regional breakdown of the economic impact of covid-19 and the provision of emergency credit under the UK government’s business-support lending schemes.
  4. If you have any questions relating to this submission, please contact Matthew Conway, Director of UK Public Affairs

The role of SMEs in levelling up

  1. SMEs are a significant part of the UK economy and will be critical to the success of the levelling-up agenda. At the start of 2019, there were 5.82 million SMEs, making up 99 per cent of firms in the UK. SMEs account for 60 per cent of UK employment (16.6 million employees) and approximately 50 per cent of turnover in the UK private sector (£2.2 trillion).[1]
  2. All initiatives to promote levelling up, including regional structures, targeted investment and Project Speed, should give significant weight to the creation of opportunities for SMEs to start up and grow. This needs to be supported by greater clarity in regional economic-development leadership, stronger local partnerships and closer alignment of structures, policies and initiatives to tackling regional economic weaknesses.

Closing the regional gap in equity finance

  1. It is widely recognised that there are regional disparities in some types of finance. Equity finance, unlike debt finance, is more concentrated in London and the south east. Research in June 2019 showed that, after controlling for a wide range of firm- and industry-specific variables, the probability of a firm getting equity funding is up to 50 per cent lower in nearly all nations and regions outside London.[2]
  2. In December 2018, the Department for Digital, Culture, Media and Sport announced a £4 million programme to help scale up creative enterprises in the west of England, Greater Manchester and the West Midlands.[3] The programme helps creative businesses to access finance and translate ideas into investment. This sector-based, regional approach could form a model to help similar businesses.
  3. BGF also plays a key role in increasing access to equity investment. Operating through 14 offices across the UK, it provides long-term, minority equity investments to all sectors of the economy.[4]

Business advice and support

  1. It is widely acknowledged that business support and advice in the UK is fragmented and difficult for SMEs to navigate and access. We fare poorly in international comparisons, and the sector suffers from too many short-term initiatives. Much of the sector is funded by the European Regional Development Fund, due to end in 2021. This provides an opportunity for the UK government’s Prosperity Fund to both fill the gap and shape existing provision so that it supports the levelling-up agenda with targeted initiatives to encourage new entrepreneurs, improvements in productivity in existing SMEs, and ambitions for growth and exports.
  2. There are examples of good practice in the UK, including the Catapult Centres[5] and initiatives provided by banks such as the Barclays[6] and Santander[7] as well as Mentorsme.[8] We also welcome two new business-support initiatives from the Department for Business, Energy and Industrial Strategy: the Small Business Leadership Programme,[9] delivered by local universities, and the Peer Networks programme.[10] We would recommend that the Committee look into these new schemes, with a focus on understanding take-up by location, sector, gender and ethnic background as well as the impact on participating businesses’ resilience and growth.

Geographic breakdown of the economic impact of covid-19

  1. The scale and complexity of covid-19 has brought about some of the most challenging economic conditions the UK has ever encountered. It has also placed immense stress on businesses of all sizes and across all sectors.
  2. The regular Business Impact of Coronavirus Survey from the Office for National Statistics tracks the turnover impact on business and how this has played out across the country. Figure 1 shows the economic impact has been relatively geographically even.

Figure 1. Net balance of businesses reporting declining turnover as a result of covid-19.

Regional distribution of covid-19 business support finance

  1. Through the UK government’s business-support lending schemes, the banking and finance sector has played a key role in deploying emergency credit to otherwise-viable businesses whose finances have been negatively affected by covid-19. The purpose of the schemes is to support businesses that were trading successfully before covid-19 but may be experiencing lost or deferred revenues or disruptions to their cashflow as a result of the pandemic.
  2. Businesses have shown considerable demand for schemes such as the Coronavirus Business Interruption Loan Scheme (CBILS) and the Bounce Bank Loan Scheme (BBLS). To date, more than 1.2 million CBILS and BBLS facilities with a value of nearly £50 billion have been approved.[11]
  3. Our analysis of British Business Bank (BBB) data shows (figure 2) how approved CBILS and BBLS facilities have been dispersed around the UK. While the main destinations in value terms for approved lending have been London, the south east and the north west of England, this is largely in proportion with the distribution of businesses around the UK. For example, while facilities offered in London accounted for 20 per cent of the total, this is in line with the region’s 19 per cent share of the total business population.

Figure 2. CBILS and BBLS facilities approved per 1,000 businesses.

  1. Moreover, the balance of facilities approved across the two schemes has also varied relatively little across the UK. Around 4-5 per cent of the total number of loans has been offered through the CBILS, but the bulk of approvals have been for the more rapidly accessible BBLS.
  2. There is clear evidence the UK government-backed lending schemes are working and support from the banking and finance sector is finding its way to the businesses that need it most. According to market research conducted for us in May 2020, businesses that have been approved for CBILS or BBLS facilities are, in general, facing greater economic distress but have also proved willing to adapt to the new business environment, increasing their economic resilience.[12] Nine in 10 applicants that have heard from their lender have been offered a facility. This is a significant increase from the 69 per cent average approval rate for business finance to SMEs.
  3. While, inevitably, not every business that had a need for finance will have been satisfied, the industry will continue to work with the UK government and local partners to engage as widely as possible with viable businesses that continue to require support as they try to manage through the recovery. The broad geographic spread of the banking and finance industry itself will continue to be an asset in this respect.

The economic recovery

  1. It is widely acknowledged that the UK private sector’s overall debt burden will increase significantly as a result of covid-19. A report by TheCityUK’s Recapitalisation Group estimated it could accrue £100 billion in unsustainable lending volumes by the first quarter of 2021.[13] This is likely to adversely affect the ability of otherwise-viable businesses, and the UK economy as a whole, to recover quickly and strongly.
  2. An estimated 75 per cent of this unsustainable debt is expected to be held by businesses outside London. Difficulties repaying debt will affect businesses across the UK and have the potential to exacerbate regional imbalances. As such, any UK-government initiatives to support the recovery will need to have regard to the needs of the nations and regions of the UK. Through our participation in the Recapitalisation Group and other fora, we and our members are working closely with a range of stakeholders to identify potential policy solutions to mitigate the effect of this debt on the economic recovery.

Role of the British Business Bank

  1. The BBB has played a critical role in delivering the UK government’s covid-19 business-support schemes. In response to the demands placed on the UK’s economy by the pandemic and the need to address regional inequalities, boost infrastructure investment and achieve net-zero emissions targets, there have been various calls for additional government-backed banks. It is essential that whatever new government support is provided not duplicate existing structures and activity and have a strong regional focus to provide tailored interventions to tackle regional economic imbalances.


August 2020



[1] https://www.fsb.org.uk/uk-small-business-statistics.html.

[2] http://data.parliament.uk/DepositedPapers/Files/DEP2019-0780/Equity-finance-regions-research.pdf.

[3] https://www.gov.uk/government/news/20-million-to-boost-creative-industries-across-england.

[4] https://www.bgf.co.uk/.

[5] https://cp.catapult.org.uk/about-us/.

[6] https://www.barclays.co.uk/business-banking/business-insight/.

[7] https://resources.santanderbreakthrough.co.uk/article/survive-and-revive.

[8] http://www.mentorsme.co.uk/become-a-mentor/getting-into-mentoring.

[9] https://smallbusinesscharter.org/small-business-leadership-programme/

[10] https://www.peernetworks.co.uk/.

[11] https://www.gov.uk/government/collections/hm-treasury-coronavirus-covid-19-business-loan-scheme-statistics.

[12] https://www.ukfinance.org.uk/covid-19-press-releases/covid-19-loan-schemes-reaching-firms-most-financial-difficulty.

[13] https://www.thecityuk.com/assets/2020/Reports/2d5179dbfb/Supporting-UK-economic-recovery-recapitalising-businesses-post-Covid-19-v2.pdf.