Government ‘will underwrite’ £40bn in business loans
Chancellor George Osborne said the government will underwrite up to £40 billion in lending to small businesses in an attempt to kick-start Britain’s flagging economy.
Mr Osborne, who delivers his autumn statement on the economy on Tuesday, said that it was “an exceptionally difficult time” for the country,
Speaking on BBC1’s The Andrew Marr Show, he said that he would use “every tool at our disposal” to get the economy going again, without jeopardising the UK’s triple A credit rating.
The government proposes to underwrite banks’ borrowing, so that they could pass on cheaper loans to businesses with a turnover of under £50m.
He said: “The government will underwrite the loans the banks make to small businesses in order to cut the interest rates the small businesses pay.”
We are making available £20bn for the National Loan Guarantee Scheme; however, it sits within an envelope that could be as large as £40bn,” he said.
“These are guarantees. We are not borrowing this money; we are underwriting the loans that are being made”.
Shadow Chancellor Ed Balls welcomed the move, but cautioned that giving firms access to credit wouldn’t restore business confidence by itself.
Speaking on the same programme he said:
“If there is a credit easing plan, that will be a good thing. It should have been done earlier.”
“We will look at the details, but I think it is very similar to the small firms guarantee scheme which has been around for years.”
A Treasury source told the Press Association the schemes were a “game changer”.
It would mean that a firm currently taking out a £5m loan at a typical interest rate of 5 per cent would instead be able to borrow at 4 per cent, saving £50,000 a year in interest payments.
Ministers hope it will be in operation by the start of 2012, and it is envisaged it will run for the next two years.
