By Christmas, we'll have lost more than 30,000 small firms since the start of the banking crisis. And it seems to be getting worse - the total number of failures to the end of October 2009 exceeded those of the whole of 2008 by 29%. The drying-up of bank credit is largely to blame, despite the huge sums of public money poured into banks and the increasingly desperate exhortations by politicians for more business lending. There are many stories of profitable businesses with solid credit records being refused loans or offered them on such punitive terms as to be usurious. Good businesses are going to the wall unnecessarily as cash reserves dwindle and banks withhold vital credit.
The threat to small business is a serious one for us all. The SME sector is a vital source of innovation and entrepreneurialism and will play a significant part in our economic recovery. The careless and uninformed remarks by Lord Sugar last month ('Disneyworld moaners') betrayed his lack of suitability for the role he has been given to foster small business. Respectful of the institution rather than the man, I would never describe a fellow member of the House of Lords - as some have - as a 'foul-mouthed corporate hobbit', but it is a pity that a more respected businessperson was not appointed to champion a sector that contributes more than 50% of the UK's GDP.
There's no doubt that it was essential to mount the epic rescue of the financial sector that the Government carried out. There were times when the truly nightmare scenario of a complete collapse of the whole western financial system was a distinct possibility. We were lucky that Gordon Brown's international reputation, even if not his domestic one, was sufficiently high for him to be able to give global leadership in this area.
But now it's payback time, and the tens of billions of pounds pumped into the banks must be used to regenerate the economy these organisations nearly destroyed. They cannot be allowed to return to business as usual, rebuilding their balance sheets at the expense of the taxpayer, reaping huge profits for their shareholders and paying obscene bonuses to the chosen few. There has to be reparation for the havoc wreaked on the economy by their excesses, for the jobs lost, the businesses forced into bankruptcy, and the savings and investments depleted.
Incidentally, bank employees have been among those most badly affected - not the kamikaze pilots of financial engineering with their vast cushioning bonus history, but the thousands of ordinary, low-paid workers on which the sector depended and who could be most easily and cheaply jettisoned. I'm personally aware of a number of long-serving, middle- ranking bankers who played no part in the decisions that brought such chaos to the sector, but who, pressured over the years to take modest bonuses in shares and to participate in last-minute-rescue rights issues, have had their entire net worth destroyed.
The financial services industry contributed only about 9% to the nation's GDP, but it represented about 25% of its growth in the years before the crash. Government was in thrall to the banks, and praise, honours and advantage were heaped on those in charge. Shareholders too were lulled by the apparently unassailable success of the banks, and regulators seemed wilfully to ignore the excesses of even outliers like Northern Rock and HBOS until it was too late. Yet the banking ombudsman reported ever- increasing consumer complaints against the banks during the period of their ascendancy, as the big institutions treated their retail customers with disdain - all the while using their deposits to shore up risky (and ultimately ill-fated) ventures in the derivatives markets.
The credit bubble, which we all enjoyed, burst with a bang and we discovered just how fragile some of our biggest and apparently safest banks really were. Hindsight is a wonderful thing, and it's true that there were few voices of warning. It would have taken a brave policitian or regulator to raise a hand in the boom years and say the banks were making too much money on too flimsy a capital base. It is to be hoped that lessons have been learned and that banks will not again be allowed to captivate the politicians and others in the same way.
Now we must recognise that we were over-dependent on the financial sector. To avoid regulation and increased taxation, it held over us the Damoclean sword of the risk to our international competitiveness. It's time banks accepted responsibility for the mess they have caused and recognised that they must contribute tangibly to the rebuilding of the economy through, for example, a regeneration fund. This could be used to support and develop other areas of excellence, such as the creative industries, science and technology, specialist engineering and manufacture, in which we can compete globally.
The many hundreds of SMEs that make up these sectors need the support of banks, which must rediscover their primary role: to enable the growth and development of business through responsible lending, rather than to magic up ephemeral profit through financial alchemy.
The City will remain a global centre of excellence not only in financial services but also in law, accountancy, management consultancy and insurance. But banks must recognise the social and economic contract they have struck in accepting the bailout monies. They need to fulfil their part, meeting their responsibilities to society and the wider economy.
To paraphrase Luke 12:48 ... From those to whom much is given, much is required.
- Baroness Kingsmill CBE has been a non-executive director of various private and public boards. She is a non-executive director of British Airways and Korn/Ferry International