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Unfair banking practices, inadequate regulation and barriers to accessing finance for smaller businesses risk blocking growth and innovation in the UK, an influential cross-party group of MPs has warned. 

A report published on Wednesday by the House of Commons Treasury select committee found that a “difficult environment” for small and medium enterprises risked “disincentivising risk-taking, innovation and, potentially, growth”.

The findings conclude a parliamentary probe into the difficulties encountered by SMEs seeking finance after being hit by the Covid-19 crisis and an energy shock linked to Russia’s invasion of Ukraine.

The number of private sector businesses rose steadily from 4.5mn in 2010 to 6mn in 2020 before dropping sharply to 5.6mn in 2023, according to the department for business and trade. 

Dame Harriett Baldwin, Treasury committee chair, said banks and regulators could “do more” to help SMEs, which make up 99 per cent of UK businesses.

An earlier finding, published by the committee as part of the investigation, found that more than 140,000 SMEs had their bank accounts closed last year.

“There’s no hiding from the fact smaller firms have had a torrid time over the last few years,” said Baldwin. “Unfortunately, what we have found over the course of the inquiry is that there are some instances where banks and regulators are making a tough world . . . needlessly tougher.”

The MPs made a series of recommendations including that the Financial Conduct Authority oblige banks to share the number of accounts they shut each quarter as well as the reason behind the decision.

The committee said “legitimate businesses” in “undesirable sectors”, such as defence, pawnbroking and amusement machines, in particular, had been closed or denied accounts based on the nature of their work.

It also recommended giving the Financial Ombudsman Service new powers to address unfair requests for guarantees in light of “evidence claiming that lenders were requiring disproportionate personal guarantees for smaller businesses seeking finance”.

The committee urged the government to deliver on its pledge made in October to introduce legislation to crack down on debanking. Ministers have committed to raising the minimum notice period that banks must give customers before closing an account from two to three months.

Data shared with the committee by the Impact Investing Institute, a non-profit organisation that promotes impact investing, found that the success rate for SME applications for bank loans dropped from

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Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.

The writer is an FT contributing editor

The Bank of Japan has, over 14 years, acquired exchange-traded funds containing stocks equivalent to about 7 per cent of listed Japanese firms. In March, BOJ governor Kazuo Ueda called time on this aspect of the central bank’s extraordinary monetary easing programme. The bank has yet to announce what it will do with its half-a-trillion-dollar stock portfolio.

But with about a quarter of stock market gains during the Abenomics period connected to their stock buying, a poorly managed exit could sink the Japanese equity market. It could also undermine the BoJ’s inflation objective.

Why exit at all? After all, in a world of gaping losses from quantitative easing programmes by central banks to support economies, the BoJ’s ETF portfolio has delivered a rare profit. The ¥37tn of cumulative stock purchases have ballooned in value to be worth an estimated ¥77tn today, according to some estimates. Criticism that individual stock prices were being distorted has largely faded since the BoJ reduced the cost of stock-borrowing. And, as Naohiko Baba, head of Japan research at Barclays, notes, the roughly ¥1.2tn in dividends that they bring come in handy. It’s enough to defray the cost of policy normalisation of its monetary policy, offsetting the cost of interest on reserves held at the bank on a policy rate up to at least 0.25 per cent.

But the bank isn’t a natural holder of stock. Its accounting framework is penal. Unrealised stock losses must be provisioned, but unrealised gains are never recognised. As such the balance sheet has an asymmetric vulnerability to stock price volatility.

So what are Ueda’s possible exit ramps? First up, the Bank of Japan itself has form. Ahead of, and during, the global financial crisis the Bank bought around ¥2.4tn in shares held by financial institutions. After initial abortive attempts, these have been in steady liquidation since 2016.

The market impact has gone almost unnoticed, but the pace has been glacial. The BoJ could apply the same softly-softly practice to ETF sales. But this would take roughly two-and-a-half centuries to complete at the same pace. Ueda has indicated he’s in no hurry but this may be stretching things.

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In March, Phillip Swagel, director of the US Congress’s independent fiscal watchdog, told the Financial Times that America risked a Liz Truss-style market shock with its soaring debt pile. His reference to the former British prime minister’s “mini” Budget in September 2022 — which led to a sudden surge in UK government bond yields and ructions across financial markets — was an attempt to fend off complacency, rather than a warning of imminent implosion.

Swagel is right to sound the alarm. America’s debt is on an unsustainable path. The Congressional Budget Office projects America’s debt-to-GDP ratio will surpass its second world war high of 106 per cent by the end of the decade, and keep rising. The total deficit is forecast to average 5.5 per cent of GDP until 2030 — about 2 percentage points higher than the post-1940 mean. Net interest payments, which are currently around 3 per cent of GDP, are expected to keep creeping upward too.

Politics is an aggravating factor. Both the Democrats and Republicans heed the importance of fiscal responsibility in theory, but neither is prepared to tighten belts, particularly in an election year. Joe Biden proposed a $7.3tn budget plan for 2025. His presidential rival, Donald Trump, has vowed to renew tax cuts enacted during his time in the White House, which could add another $5tn to the nation’s debt, according to the Committee for a Responsible Federal Budget, a think-tank.

America’s growing debt puts upward pressure on its longer-term borrowing costs. Lax fiscal policy can raise inflation expectations and the perceived risk of holding debt for long periods. The hefty pipeline of debt issuance will also need to be absorbed by more price-sensitive investors, with the Fed now engaging in quantitative tightening.

Elevated yields raise the cost of borrowing and could undermine economic growth. There is an increased vulnerability to rapid and disruptive movements in US bond markets. This has knock-on effects for credit and financial stability abroad too, since US Treasuries act as a benchmark for pricing debt globally. IMF research suggests that a 1 percentage point spike in US rates led to a 90 basis point rise in other advanced economies’ bond yields, and an increase in emerging markets of 1 percentage point. Restraints on domestic and global growth will only heighten the debt reduction challenge.

America’s