In a move to address the growing financial challenges faced by small and medium-sized businesses, senior Labour backbenchers have tabled a bill that would force UK banks to expand their lending to these enterprises and low-income communities.
The proposed legislation, modelled after the US Community Reinvestment Act (CRA), aims to increase transparency and accountability in the banking sector. If passed, it would require banks to “measure and disclose their performance in reducing financial exclusion, including exclusion from affordable credit, and in improving access to finance for small and medium-sized businesses.”
Gareth Thomas, the former minister who introduced the 10-minute rule bill, emphasised the urgent need for action, stating: “Given the cost of living crisis, we need to unlock far better access to cheap loans for the millions of people on low and middle incomes to help them through the financial emergencies that everyone faces at some point, while also making it easier for talented entrepreneurs to find the affordable finance they need to get their businesses up and running.”
The bill has the backing of several prominent Labour figures, including the chair of the Treasury Select Committee, Meg Hillier, and former Shadow Chancellor Anneliese Dodds. Campaigners have welcomed the initiative, with Michelle Ovens, the founder of Small Business Britain, describing it as “an important step towards tackling financial exclusion by increasing transparency and accountability across the banking sector.”
However, the Treasury has suggested that existing laws and regulations, such as the consumer duty overseen by the Financial Conduct Authority, already place responsibilities on banks regarding financial inclusion. The government has also pointed to its own financial exclusion strategy, which includes a commitment to supporting the expansion of credit unions.
Despite these concerns, the bill’s supporters believe it is a necessary step to ensure that the financial sector is doing more to support small businesses and low-income communities. As Hillier noted, “All too often, improving financial inclusion is treated as an abstract box-ticking exercise rather than a core responsibility of a modern, progressive society.”
While the legislation faces an uphill battle in the current political landscape, its introduction reflects the growing demand for greater accountability and accessibility within the UK’s financial system.