CBI boss Lambert falls out with Mandelson over 'dotty' bank watchdog

Richard Lambert's criticism of the new credit adjudication service goes down badly with Lord Mandelson.

Last Updated: 31 Aug 2010

A remarkable spat broke out between CBI chief Richard Lambert and Business Secretary Lord Mandelson this weekend, over the Government’s proposed new small business credit adjudication service. After Lambert (not unreasonably) described the idea as ‘completely dotty’ and ‘pure political rhetoric’, Mandy slammed his ‘shocking and shameful’ indifference, and accused him of siding with ‘bullying banks’ over small businesses – a claim Lambert has of course denied. Now we sympathise with the premise of the new watchdog. But although the CBI is undeniably inclined to speak out on behalf of big business (that’s kind of its point), we can't help agreeing with Lambert that the last thing we need is another dubious quango…

The idea behind the new credit adjudication service is, theoretically, to make sure that banks give small businesses a fair deal on lending – a noble cause indeed. The theory is that firms who are refused credit will be able to appeal, and the watchdog will have the legal power to overturn the bank’s decision. Significantly, this will apply to all the banks, not just the state-owned RBS and Lloyds.

All well and good. But what will this actually mean in practice? By what legal mechanism will a Government quango staffed by civil servants (the head of whom, incidentally, will apparently pocket about £500k a year) be able to overturn the commercial decisions of a privately-owned bank – particularly one that’s simultaneously under pressure from the regulators to protect capital reserves? And as Lambert points out, what happens if the watchdog intervenes, forces the bank to lend, and the firm subsequently goes bust? Will the quango then be liable for the bank’s losses?

So it’s hard to argue with Lambert’s suggestion – in an interview with the Times – that the plan is ‘completely dotty’. Mandelson (who says there’ll be a consultation process with the banks) reacted furiously, insisting that the CBI boss was out of touch with small firms. Not at all, replied Lambert: ‘I warmly welcome workable plans to support them, but regrettably this isn't one of them,’ he told the Telegraph. And we think he has a point: this is one of those schemes that sounds good in theory, but is likely to be unworkable in practice. Perfect for politicians, you might argue.

In today's bulletin:

Tories aim for business vote with NI pledge
CBI boss Lambert falls with Mandelson over 'dotty' bank watchdog
China flexes its muscles with Volvo deal
The Parent Project: Officially Too Fat to Fly
MT Expert's Ten Top Tips: Prepare for possible changes in Westminster

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