This post was originally published on this site.
Senior Labour backbenchers are pressing the government to force UK banks to expand lending to small businesses and low-income communities, warning that a lack of affordable finance is holding back entrepreneurship and economic resilience.
Gareth Thomas, a former business minister, has tabled a 10-minute rule bill that would require banks to measure, disclose and improve how they serve underserved communities and smaller firms. The proposal mirrors the US Community Reinvestment Act, which obliges American banks to demonstrate how they support poorer areas and small enterprises.
Thomas said the cost of living crisis had exposed deep weaknesses in access to affordable credit across the UK economy. He argued that millions of households and early-stage entrepreneurs struggle to secure low-cost finance at precisely the moments when it could prevent financial distress or enable business growth.
The bill has attracted backing from a group of senior Labour figures, including Treasury select committee chair Meg Hillier, business and trade committee chair Liam Byrne, work and pensions committee chair Sarah Owen, and former shadow chancellors Anneliese Dodds and John McDonnell.
Under the proposed legislation, banks would be required to report on their performance in reducing financial exclusion and improving access to finance for small and medium-sized enterprises. Regulators would then rate banks against those criteria, increasing transparency and applying pressure to improve outcomes.
The bill would also compel banks to provide greater support for credit unions and community development finance institutions (CDFIs), which often specialise in face-to-face lending for small firms and individuals overlooked by mainstream lenders. In the US, many banks meet their obligations under the Community Reinvestment Act by partnering with such organisations.
The push comes despite the Treasury publishing a financial inclusion strategy last year that included support for expanding credit unions. Campaigners argue that the strategy lacked enforceable duties on banks and relied too heavily on voluntary action from the sector.
Hillier said financial inclusion should not be treated as a peripheral issue. “All too often, improving access to finance is seen as a box-ticking exercise rather than a core economic priority,” she said, adding that the Treasury committee is currently examining whether government plans go far enough to address structural barriers to finance.
Small business advocates welcomed the proposal. Michelle Ovens, founder of Small Business Britain, said many entrepreneurs still face significant obstacles when seeking fair and affordable banking services. She described the bill as a step towards greater accountability across the financial sector.
The legislation is unlikely to progress in its current form, but it reflects growing unease among Labour MPs about the government’s economic direction, particularly after recent policy reversals on business rates relief for pubs and changes to inheritance tax thresholds for farmland.
A Treasury source cautioned that banks are already subject to obligations around financial inclusion through existing regulation, including the Financial Conduct Authority’s consumer duty, and suggested the bill could duplicate current requirements.
Nevertheless, the proposal highlights mounting political pressure for a more interventionist approach to small business finance, as concerns grow that limited access to affordable credit is stalling growth across large parts of the UK economy.
