An influential group of MPs is sounding the alarm about finance obstacles faced by small and medium-sized enterprises (SMEs) in the UK, which could hamper the country’s growth and innovation. They highlight unfair banking practices, inadequate regulation, and hurdles in accessing finance as major concerns.

In a report released on Wednesday, the House of Commons Treasury select committee found that SMEs are navigating a challenging environment, risking their ability to take risks, innovate, and grow. This conclusion follows an investigation into the struggles SMEs face post-Covid-19 and amid geopolitical tensions like Russia’s actions in Ukraine.

The number of private sector businesses in the UK rose steadily until 2020 before declining sharply in 2023, signaling a troubling trend. Dame Harriett Baldwin, chair of the Treasury committee, emphasized that banks and regulators need to step up efforts to assist SMEs, which comprise 99% of UK businesses.

One concerning finding is that over 140,000 SMEs had their bank accounts closed last year. This revelation underscores the tough challenges smaller firms have faced recently. The committee urges regulatory action, recommending that banks disclose quarterly data on closed accounts and reasons behind these decisions.

Moreover, they propose empowering the Financial Ombudsman Service to address unfair lending practices and call on the government to fulfill its promise to crack down on debanking. The impact on SMEs is stark, with the success rate for bank loan applications dropping significantly in recent years.

While the Prudential Regulation Authority’s plans for Basel 3.1 aim to reform global capital standards, MPs caution that these reforms could further tighten conditions for SMEs. The report also suggests closing and replacing the Business Banking Resolution Service, which has settled only a fraction of disputes between SMEs and lenders despite its high operational costs.

UK Finance supports the report’s recommendations and emphasizes the need to maintain support for SMEs as regulatory changes are implemented. However, they also note that most account closures are due to financial crime concerns or incomplete due diligence, highlighting broader challenges in the banking sector.