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So who's in charge here - the government lending £37bn to bail out badly run banks or the bankers that caused the crisis? The chancellor is attempting to crack the whip and toughen the voluntary code on lending to small business. The banks veer between protesting that they are lending just as much as in 2007 to suggesting it's none of the government's business. Darling has his ambiguities, anxious not to micromanage banks even when we, the people, are the biggest shareholders. The European Investment Bank tries to ensure the £4bn promised this week is lent at fair rates, but the government has yet to persuade every bank to use it for easier lending.
The two sides have been locked in talks all week; the government promising an agency to manage its banking investments and a forum where small businesses can meet banks to complain. Observers say the banks' gratitude at being saved was shortlived: now they negotiate ferociously. Barclays preferring to be beholden to Qatari and Abu Dhabi potentates, rather than submit to British (Labour) government regulation, says it all. It would rather keep paying big bonuses - £20m to its top man - and now its shares have tumbled. All banks shudder in ideological horror at the idea of being partly nationalised.
Here is how things look from one of the great glass towers of banking (a bank that only let me in on condition of anonymity). The man in charge of lending to small business is going through a sheaf of loan applications. A restaurant wants to increase its overdraft, pleading to be helped until the good times roll again. "But that would do no favours to him or us. His problem is not lack of credit, it's lack of customers. Lending more won't bring them back through his door. Better to call it a day now." So it's a no.
How about the golf club that borrowed last year to diversify into paint-balling? Business was disappointing this summer, but they are sure it will pick up. No, says the bank, it won't, so retrench back to your core golfing and lay off staff. It's no to the small property developer wanting to buy a bargain to convert it into four flats. "Last year no problem, but those days are gone." A nursing home waiting for delayed local council bills is a sound bet: it gets its credit. A high-quality butcher staggering when a celebrity chef went bust leaving a £50,000 debt gets his money because the queues round the block show business holding up. Management consultants, lawyers and accountants who thrive whatever the climate get the OK.
This bank says it is approving 10% fewer loans than last year: insolvencies are up by 5%. It swears its lending criteria remain unaltered but says the risk out there has changed. It swears its interest rates are, as ever, 2% above interbanking lending rates, their usual profit margin: it's not their fault London interbank offer rates rose so high. A senior manager here, involved in the negotiations with government, is holding his ground. "It's dangerous to force us to take on more risk. They keep promising 'a bail-out for small business', but what does that mean?" He has an air of determined defiance - and maybe an undertow of contempt for politicians (Labour especially?) who are not bankers.
But out there, far beyond this great glass palace, the Federation of Small Businesses declares this bank and the rest are lying through their teeth: its claims the figures to prove it. Half their members find it hard to get credit, even small regular sums for day-to-day transactions in solid firms. They say what bank head offices tell the press and government bears no resemblance to what local bank managers do, accusing them of sending coded messages to their branches rewarding them for cutting back debt. The FSB says: "It is time to tear up the rulebook to save millions of small businesses that drive our economy and employ 60% of the workforce."
It has no shortage of cases. I talked yesterday to a Welsh scaffolder who cannot get a promised £3,000 overdraft from his bank to get his second lorry on the road and hire another man to fulfil work he's having to pass on to other companies. Or there is the technology public relations firm owner showing me the standard letter sent out by his bank - which happens to be the very one I spent time with - telling him without notice in September his interest rate "will be changing from 6.87% to 10.87% above base rate. Please may I reassure you that our commitment to your business hasn't changed."
What is the truth of this? I asked two bankers involved in the negotiations if the government has demanded details of how they lend now compared with last year. No, they said, they haven't had to provide those accounts. Labour needs to clear a quick path through this thicket to make sure the funds made available really do reach businesses in need. Naturally, the government is no keener than banks to throw money at doomed businesses, so it hesitates to second-guess "the experts". But this must be a good time to face down the myth that bankers always know best.
One irony is that Labour will win scant gratitude for championing small business. They will probably stay Tory, despite George Osborne's error yesterday in opposing borrowing, even to ease the pain for small business. The British Chambers of Commerce still flaunts its absurd Burdens Barometer, claiming that this year Labour's extra regulations have cost business £65bn since 1997. The "burdens" include such frivolities as maternity leave, stakeholder pensions and the control of pesticides and asbestos. Will Labour battling with the bankers on their behalf turn them into Labour supporters? Don't count on it.
The government's £37bn doesn't start to flow until January, so there is still time to nail down a cast-iron method of forcing banks to lend and not hoard the cash. Yet some lending still gushes forth. A virtually penniless client of HBOS sends this offer she just received from her bank: "£10,000 is reserved and waiting for you! As a valued customer we've reserved you a personal loan at a rate of just 8.8%. If you wish you can apply for more ..." After writing last week about bankruptcies due to personal debt, many others with no money have showered me with similarly irresponsible offers. So the idea that banks always know best should have Alistair Darling at least raising one of his famous eyebrows.
polly.toynbee@guardian.co.uk
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