The first phase of the FLS, which ends on 31 January 2014, is unaffected by this announcement.
The FLS extension will continue to allow participants to draw from the scheme from February 2014 until January 2015, but household lending in 2014 will no longer generate any additional borrowing allowances. Instead additional allowances will now only reflect lending to businesses in 2014. The initial borrowing allowances in the FLS extension already earned by household and business lending in 2013 will be unaffected.
Lending to smaller businesses in 2014 will continue to be encouraged by allowing banks to draw £5 in the scheme for every £1 of net lending to SMEs. The fee for all drawings from the FLS extension will be set at 25 basis points, which is the lowest point of the previous fee scale. Taken together, these features provide certainty over the availability of cheap funding to support small business lending in 2014.
The Financial Policy Committee has welcomed these changes. The Monetary Policy Committee has judged that there will be no material impact on the stance of monetary policy, and noted that these changes do not affect the MPC’s policy guidance.
Commenting on these changes to the scheme, the Governor of the Bank of England said:
“Over the past year the Funding for Lending Scheme has contributed to the recovery by helping to significantly improve credit conditions, especially for households. The changes announced today refocus the FLS where it is most needed – to underpin the supply of credit to small businesses over the next year – without providing further broad support to household lending that is no longer needed.”
Commenting on these changes to the scheme, the Chancellor of the Exchequer said:
“The Funding for Lending Scheme proved to be a successful tool in supporting the recovery. Now that the housing market is starting to pick up, it is right that we focus the scheme’s firepower on small businesses. Small firms are the lifeblood of our economy. That’s why we’re reforming the banks, introducing the employment allowance and now focussing the Funding for Lending Scheme to support them.”
