A Warning from Cable 
The UK’s four biggest banks received a strong warning today from Business Secretary Vince Cable, who said that the Government is willing to take “further action with tax on banks” if they do not improve their rate of lending to SMEs.

Under the Project Merlin agreement, the banks agreed to lend £76 billion to SMEs in 2011.

But it would seem that they are not living up to the agreement, which had initially given hope to struggling SMEs across the UK.

In an attack on the level of lending being offered to small businesses, Mr Cable told MPs on the Business Committee that the rate of lending was a “serious problem”.

Vince Cable said the Government were looking for better results: “The Chancellor and Prime Minister have made it clear that if we don't get results, they have said we should take further action with tax on banks.”

In response to the warning from Mr Cable, the UK’s four biggest banks will later give their side of the story to the Treasury Committee.

Stuart Gulliver of HSBC, Stephen Hester of Royal Bank of Scotland, Bob Diamond of Barclays and Antonio Horta-Osorio of Lloyds will answer questions on the Independent Commission on Banking.

The warning follows recent news that banks had missed their Project Merlin lending target for the first quarter of the year. They agreed to lend £19 billion to SMEs during each quarter of the year but the banks lent only £16.8 billion.

Mr Cable said there was a mixture of factors involved as to why banks were not meeting their targets. The level of demand from SMEs is one factor, with the banks saying it is weak. However, businesses say they are being discouraged from applying in the first place.

He also said that banks were being more cautious in their lending because of the Government's requirement that banks hold more capital.

Mr Cable said that banks have moved away from "relationship banking" as they “don’t have the infrastructure in place to assess the risk of lending to small business”.

Demand for funding would increase if SMEs felt more encouraged to apply for funding. The Project Merlin deal put hope in many SMEs across the UK but this was soured with news that banks failed to meet their lending targets. Now the Government have recognised it is a “serious problem”, banks will hopefully work harder meaning more funding will become available.

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The Cost of Bankruptcy  
The process of declaring bankruptcy is stressful enough but the procedure is set to put people under even more pressure, with news that the cost of going bankrupt has escalated considerably.

Debt experts are warning that the rising cost for petitioning bankruptcy may discourage people from seeking a solution, with costs rising steeply from £75 to £525 at the start of the month. And with the court fee added on, the total cost could be as much as £700.

Overall, the fees of petitioning bankruptcy have risen by 37% since March last year.

Bankruptcy is the traditional way of freeing yourself from the burden of debt and making a fresh start. It ends after one year, and the bankrupt will usually lose all of their assets, including their house, to pay something back to the creditors.

So why has the cost risen so abruptly? The Insolvency Service said the rise was due to covering the administration costs. The £525 is a deposit to cover the costs of managing a bankruptcy and the Insolvency Service then recovers a full administration fee of £1,715 from the bankrupt’s assets or income at a later stage.

The deputy head of the Insolvency Service, Graham Horne, said the sum was not being increased: "The fee is staying the same but we are increasing the proportion of that fee which we get on day one.”

The Insolvency Service’s income is said to have reduced because of the falling value of homes and other assets which are recovered from bankrupts.

Jon Elwes, from the Money Advice Trust, said: "This increase in the cost of going bankrupt is likely to swell the numbers of people falling through the net of the current insolvency regime.

"Our advisers at National Debtline speak to people everyday for whom bankruptcy would be the best solution to their debt problem, but for the fact they cannot afford the associated fees."

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Strike Action 
Business Secretary Vince Cable received boos and heckles at the GMB union’s conference today, after warning that co-ordinated public sector strikes would lead to a tougher stance on union laws.

Mr Cable’s warning came after unions warned of the possibility of major strikes on June 30th. The Business Secretary said that if the number of strikes remained low he would not have a compelling case for issuing tighter union laws.

During his speech, Mr Cable was jeered and heckled at as he spoke of how pressure would be on him to act if widespread disruption was caused by a higher level of public sector strikes.

The only positive cheers the Business Secretary received were when he spoke of the prospect of a day of industrial action across significant parts of the public sector.

Addressing delegates in Brighton, Mr Cable said: “We are undoubtedly entering a difficult period. Cool heads will be required all round. Despite occasional blips, I know that strike levels remain historically low, especially in the private sector.

“On that basis, and assuming this pattern continues, the case for changing strike law is not compelling.

He added: “However, should the position change, and should strikes impose serious damage to our economic and social fabric, the pressure on us to act would ratchet up. That is something which both you, and certainly I, would want to avoid.”

Mr Cable’s views are supported by the Mayor of London, Boris Johnson, who wants laws to prevent a strike taking place unless at least half of the union members in a workplace take part in a ballot.

Paul Kenny, the GMB General Secretary, said: "I don't think that any strike in this country could inflict the sort of economic damage on our country that the banks and finance houses and frankly current Government policy have done.”

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Growth in Construction 
After a very long period of gloomy economic forecasts and data, relief was felt following news that the construction sector experienced a modest growth spurt during May, according to a survey.

The pick-up in growth is said to be due to the increasing number of new orders and once-forgotten projects now getting the go ahead. This supported a month of expansion in the sector’s activity, which meant employment figures across the sector were also raised for the first time since June 2010.

The monthly purchasing managers' index (PMI) from Markit/CIPS came in higher than expected with a headline reading of 54, which was up slightly from last months reading of 53.3. A rise in the expansion rate is positive news as a reading above 50 signals growth across the sector.

However, the index is below the average reading experienced in the first quarter of 2011 but compared with the manufacturing sector’s PMI, which had fallen to levels last seen during the recession, the data for construction came as a relief.

After contracting in April, house building also got back onto growth mode, which helped to counterbalance the shrinking civil engineering activity. The survey also stated that, compared to the previous month, commercial building was quite stable and growing at a solid rate.

David Noble, chief executive at the Chartered Institute of Purchasing & Supply (CIPS), said: “The millstone of public spending cuts can be seen clearly in this month’s construction PMI, but aside from the unsurprising decline in civil engineering activity, the overall figures are not quite so foreboding."

He added: “It's encouraging to see a return to growth in the housing sector after April’s blip but there may be a long way to go before underlying demand for new properties, whether purchase or rental, takes the edge off market volatility.”

It is hoped that this news of growth in the construction sector will make a positive impression on the economy’s headline growth during the second quarter of this year.

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Pay Vs Inflation 
There has been a very gentle rise to private sector pay deals, with the latest analysis revealing they have risen to 3 per cent. However, the majority of pay rises are failing to keep pace with the cost of living as they still remain below the rate of inflation.

The study by IDSPay.co.uk said that a small number of pay rises are above 4 per cent, with some car and utilities industry deals being close to the days of pre-recession.

In the first quarter of 2011, pay rises for private sector workers rose from 2.5 per cent at the end of March to 3 per cent by the end of April, showing very small signs that wages are slowly climbing back up. Workers in the manufacturing sector saw their level of pay rising considerably, from 0.5 per cent to 3 per cent during the same period.

Ken Mulkearn, editor of IDS Pay Report, said: “The latest figures show that private sector pay awards are where we thought they would be at this time, reflecting a degree of recovery in profitability and higher levels of inflation .”

However, the future for workers wages continues to look bleak as inflation sores and employers not being in the position to match the rate with pay rises. Economists have warned that there is a “limited” chance pay would catch up with inflation in the near term. Therefore, workers are set to continue to struggling as their take-home income fails to match the cost of living.

Economist at BNP Paribas, Ken Wattret, said workers would continue to feel the pinch as there were a number of recent factors, including disappointing figures for manufacturing output and yesterday’s low mortgage approval levels, showing that the economy was still “really struggling”.

Mr Wattret also said employers were under little pressure to hand out pay rises to match the inflation rate, saying: “It’s going to be a very difficult period for the economy in general and the labour force. In the short run inflation will get higher.”

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