The Funding for Lending Scheme, introduced in August last year, was introduced by the government to increase the number of loans being offered to individuals and businesses by the banks. However, despite the scheme, the Bank of England announced that net lending fell by £2.4bn in the final quarter of last year compared with the previous three months.

This shortfall in lending has prompted Business Secretary Vince Cable to admit that the scheme may need to be “adapted”.

“It is working in some areas with some of the new banks, but it isn’t yet countering the negative trend and the very conservative lending patterns the banks in general are promoting in relation to business.”

Mr Cable will now to speak to the Bank of England, which operates the scheme, to see how it can be improved.

Official figures from the Bank of England show that, despite the additional provision of £14bn of funding to the banks, the scheme has been slow to trickle through to customers due to the time it takes for banks to scrutinise and approve loan applications.

How has the scheme affected the banks’ lending?

  • Barclays: +£1.8bn
  • Nationwide: +£1.7bn
  • Lloyds Group: -£3bn
  • Santander: -£2.8bn
  • RBS: -£1.6bn

Despite the lag in the scheme filtering through to individuals and businesses, the Bank of England believes that there has been a shift for the better, with banks lending more than they otherwise would if the scheme were not in existence.

In a bid to boost the flagging economy, at least £70bn will be made available to banks at reduced interest rates. However, the funding will only be granted to lenders if it is the UK’s small and medium-sized businesses, as well as individuals, that benefit.

The message from mortgage industry insiders is less forgiving of the banks, with brokers believing that some lenders are guilty of increasing their reserves, rather than opening themselves up to more lending. This view is supported by new figures released by the banks themselves, which confirm that lending to businesses is continuing to fall.

The British Bankers Association (BBA), which represents all the main banks, has released data which shows that lending to the UK’s four million small and medium-sized businesses fell by £382m in the last quarter of 2012 alone; although it did insist that the majority of loan applications are approved.

The BBA believes the lending shortfall is largely down to the fact that small and medium-sized businesses are sitting on large cash reserves and opting to pay off debts, rather than borrowing more.

The association also believes the media are having a detrimental effect on borrowing, with business owners becoming increasingly deterred from applying for loans by headlines which focus on the banks’ reluctance to lend.

This point has been emphatically dismissed by Liberal Democrat peer Lord Oakeshott: “That is a pathetic excuse. Many profitable, perfectly good businesses are being starved because they can’t access the lending they need.

“The reason is that RBS in particular, and Lloyds, have been aggressively shrinking their balance sheets and sucking money out of British business.”