Financing Innovation

A common complaint from manufacturers relates to the difficulty in obtaining finance to fund innovation, research and development. The complaint alleges that - even prior to the financial crisis - banks were simply not interested in lending to manufacturers, preferring to lend to more glamorous, high-risk, high-return sectors.

The figures bear this allegation out. Lord Turner, the head of the Financial Services Authority, has pointed out that lending by the UK financial system roughly trebled in the decade before the crisis, but total lending to manufacturing companies was actually slightly lower in 2007 than it was in 1997.

The financial crisis has done little to improve matters, with banks even more wary of lending. Not unreasonably in light of political commitments to 'rebalance the economy', this situation has led to calls for a bank specifically devoted to support for manufacturing and able to respond to the needs of manufacturers.

The fact is, however, that despite calls for this to happen and despite the state ownership of certain banks making it eminently feasible, there has as yet been no meaningful progress on this matter. Since access to finance is critical to any hope of a UK manufacturing recovery, we must hope that this remains a meaningful possibility.

Paul Fanning

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