Tweet
The government is to place fresh obligations on banks to increase help for small businesses, it was announced yesterday.
The move came as David Cameron said the goverment's £50bn bank recapitalisation scheme had failed to unfreeze the flow of credit into the economy.
Cameron proposed the establishment of new institutions to underwrite lending, but claimed his proposal would not require extra state borrowing.
The Liberal Democrat leader, Nick Clegg, came up with a rival proposal in which the government directly lends to business, possibly through a new bank, while the Federation of Small Businesses yesterday made an appeal for a £1bn "survival fund" to ease the credit crunch.
The government's extra funding to support the obligations will be set out in the pre-budget report, Gordon Brown indicated at prime minister's questions. The new scheme will cost extra money, and it is likely to be more than a simple expansion of the existing small loans guarantee scheme. Ministers clearly believe banks need to be forced to lend after the injection of government capital.
There is a growing consensus at Westminster that the recapitalisation in October has not yet done enough to ease the credit crunch, with the inter-bank lending rate falling only slowly, and business insisting they are going under purely due to the lack of credit. obliga
At the time of recapitalisation, the banks agreed "the availability of lending to homeowners and small businesses will be maintained at at least 2007 levels". But there was uncertainty over the impact of this pledge since banks would be allowed to apply normal credit-scoring criteria.
Brown told MPs yesterday: "The issue now is how banks will ensure funding to small businesses and homeowners.
"We are in discussions with the banks about how HBOS, Lloyds TSB and Royal Bank of Scotland can achieve their promise for lending at the level of 2007 and, second, how all the banks resume lending."
The government has said it will not exercise a veto over banks' lending decisions, through either the non-executive directors it appoints or its handling of its shareholding.
The business secretary, Lord Mandelson, met bank executives last week, where they agreed to provide data that will let a new government forum monitor their lending to business.
The Liberal Democrats proposed a system of direct lending through a range of institutions including an entirely new bank, with government backing, whose remit is to supply affordable credit at prudent levels.
Their proposals include extending the powers of the Post Office to offer lending services,and to allow local councils to lend, or using one or both of the two fully nationalised banks.
Cameron's aides said his still-developing proposals for government guarantees to business would not add to government borrowing since the loans would be classed as contingent liabilty.
The business and enterprise department already has a small firms loans scheme in which 75% of the loan is guaranteed by government.
Loans under the scheme are guaranteed up to £250,000 and with terms of between two and 10 years. The loan is available only to firms with a turnover below £5.6m.
Only 2,619 loans, with a total value of £207m, were granted in the last financial year, despite expectations that 4,000 would be made available.
guardian.co.uk © Guardian News & Media Limited 2008 | Use of this content is subject to our Terms & Conditions | More Feeds
More...
