According to UK Cabinet Office figures, in 2018, there were in the region of 5.4 million small and medium-sized enterprises (SMEs) in the UK. They represent approximately 60 per cent of employment and roughly 50 per cent of total private business turnover. Their banking business is worth some ￡2 billion in revenue and SME business loan balances are around ￡90 billion. By any standards, this is a sizeable market.

To date, as we have demonstrated, whatever failings there may be on the side of SMEs, the major banks have not been able or willing to develop their provision of higher value services to the sector with any real success. This as we have seen is a long-standing problem, which has its roots in historical and cultural reasons as well as financial and political economic structures. In this chapter, we will examine the current embedding of banking practices and the relationship of those practices to the oligopolistic structure of British banking, with five very large centralized banks dominating the banking sector. This analysis is a prerequisite to change, successfully, the operating nexus between SMEs and banks.

The chapter will utilize the work done by the 2011 UK Independent Banking Commission (the Vickers Commission) referred to in Chapter 2, including the evidence submitted by the author himself to the Commission on behalf of the Global Policy Institute, as well as a variety of more recent work, both academic and official. The chapter will also integrate information sourced from semi-structured interviews with key organizations and potential players in the business banking market.

The overall intention will be to: (1) anticipate how far the British business banking sector appears willing to provide the long-term investment finance required to raise the productivity and positive economic impact of the UK SME sector; (2) illustrate how the current UK banking structures and systemic flaws are likely to inhibit any proposed reforms; and (3) explore the alternative finance routes and banking competition which is emerging and how banks are likely to respond to this competition.

How UK SMEs are currently viewed by major banks

SMEs expect from their banks the efficient provision of basic banking services. These they will tend to define as business current accounts, payments and related processes, and overdrafts.