Senior Labour MPs are calling on the government to compel UK banks to expand lending to small businesses and underserved communities, warning that limited access to affordable finance is holding back entrepreneurship and economic growth.
Gareth Thomas, a former business minister, has introduced a 10-minute rule bill that would require banks to monitor, report, and improve how they serve smaller firms and financially excluded areas. The proposal is modelled on the US Community Reinvestment Act, which obliges American banks to demonstrate support for low-income communities and small enterprises.
Thomas said the ongoing cost of living crisis had exposed deep weaknesses in access to credit. He argued that millions of households and early-stage entrepreneurs struggle to secure affordable finance precisely when it could prevent financial stress or enable business expansion.
The bill has secured backing from several senior Labour figures, including Treasury select committee chair Meg Hillier, business and trade committee chair Liam Byrne, work and pensions committee chair Sarah Owen, and former shadow chancellors Anneliese Dodds and John McDonnell.
Under the proposed legislation, banks would be required to report on how well they reduce financial exclusion and improve lending to small and medium-sized enterprises (SMEs). Regulators would then assess performance against these criteria, increasing transparency and applying pressure to drive improvements.
The bill would also push banks to provide greater support for credit unions and community development finance institutions (CDFIs), which focus on lending to individuals and small businesses overlooked by mainstream banks. In the US, many banks meet their obligations under the Community Reinvestment Act by partnering with such organisations.
Labour MPs and campaigners argue that voluntary measures are insufficient. Last year, the Treasury published a financial inclusion strategy that included support for credit unions, but critics said it lacked enforceable duties on banks and relied too heavily on voluntary action.
“All too often, improving access to finance is seen as a box-ticking exercise rather than a core economic priority,” Hillier said. She added that the Treasury committee is examining whether government plans go far enough to tackle structural barriers to finance.
Small business advocates welcomed the move. Michelle Ovens, founder of Small Business Britain, said many entrepreneurs still face significant challenges when seeking fair and affordable banking services. She described the bill as a step toward greater accountability across the financial sector.
While the legislation is unlikely to progress in its current form, it reflects growing concern among Labour MPs about the government’s economic approach, particularly following recent policy reversals on business rates relief for pubs and changes to inheritance tax thresholds for farmland.
A Treasury source noted that banks already face obligations under existing regulation, including the Financial Conduct Authority’s consumer duty, and suggested the bill could overlap with current requirements.
The proposal highlights mounting political pressure for a more interventionist approach to small business finance, as limited access to affordable credit continues to hinder growth across many parts of the UK economy.
