Back in 2011, the UK’s Conservative-led government tried to boost small business lending with a scheme known as “Project Merlin”. With hindsight, the reference to wizardry was appropriate, since repairing relations between the country’s banks and businesses has proved beyond the ability of regular mortals.
Through his plan, then chancellor George Osborne hoped to avoid a repeat of the credit crunch that preceded the global financial crisis. The events of 2008 showed that a pullback in new lending could exacerbate a slowdown in economic growth, putting yet more pressure on banks’ balance sheets and leading to further lending restrictions.
Almost two decades later, Osborne’s quest has been an abject failure. For all the lending promises, competition probes, government schemes and new entrants to the market, the deleveraging of small and medium-sized enterprises — or SMEs — that started in 2007 has in some ways never ended. It now falls to chancellor Rachel Reeves to try her hand at financial sorcery.