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Osborne plans billions in 'credit easing' loans | Osborne plans billions in 'credit easing' loans |
(about 1 hour later) | |
Chancellor George Osborne will unveil three credit easing schemes to release £20bn in loans to small firms when he delivers Tuesday's autumn statement. | |
Under one such plan, the government would underwrite banks' borrowing so they could pass on cheaper loans to firms turning over less than £50m. | |
The government wants to keep credit lines flowing to boost economic growth. | |
But shadow chancellor Ed Balls said access to credit alone would not be enough to restore business confidence. | But shadow chancellor Ed Balls said access to credit alone would not be enough to restore business confidence. |
Mr Osborne's first scheme would see the government provide a guarantee for banks to borrow on the financial markets. | |
Those institutions would then be obliged to pass on the cheap lending rates to small and medium-sized companies. | Those institutions would then be obliged to pass on the cheap lending rates to small and medium-sized companies. |
It is said to be similar to the Labour government's credit guarantee scheme of 2008, launched in the wake of the credit crunch. | |
'Game changer' | |
In a second smaller scheme, he will propose that the government takes a stake in an investment fund with private sector investors to provide a source of credit or loans to medium-sized companies. | |
A third would offer an alternative to traditional bank loans by encouraging firms to sell bonds - or company IOUs - to the market. | |
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% would instead be able to borrow at 4%, saving £50,000 a year in interest payments. | It would mean that a firm currently taking out a £5m loan at a typical interest rate of 5% would instead be able to borrow at 4%, saving £50,000 a year in interest payments. |
Ministers hope it will be in operation by the start of the new year, and it is envisaged it will run for the next two years. | |
Businesswoman Laura Tenison, founder of children's clothes store JoJo Maman Bebe, said banks should be happy to keep lending to small firms that understood good financial planning. | |
"I know what it's like to run a small business - I know when you're so busy dealing with everyday problems, you don't have time to cash-manage in the way that a slightly bigger business can," she said. | |
"But, if you do plan for the future, very carefully, then you can see yourself through the peaks and troughs of the economic cycle." | |
She added that in her experience, banks would support businesses that prepare, but added "I'm sure there are many cases where they feel that they've been let down". | |
In a joint letter to Mr Osborne, shadow chancellor Ed Balls and shadow business secretary Chuka Umunna warned that the credit easing alone would not be enough to revive economic growth. | In a joint letter to Mr Osborne, shadow chancellor Ed Balls and shadow business secretary Chuka Umunna warned that the credit easing alone would not be enough to revive economic growth. |
"At the current rate, over 1,200 people a day are entering unemployment," said the letter. | "At the current rate, over 1,200 people a day are entering unemployment," said the letter. |
"Businesses are going bankrupt at a faster rate than a year ago - despite your expressed wish for a private sector-led recovery. | "Businesses are going bankrupt at a faster rate than a year ago - despite your expressed wish for a private sector-led recovery. |
"Access to credit will not in itself restore the confidence of business to invest. The country urgently needs a plan for growth and jobs." | "Access to credit will not in itself restore the confidence of business to invest. The country urgently needs a plan for growth and jobs." |
Mr Osborne is also due to announce a cap on rises for regulated rail fares, such as peak fares and season tickets. | Mr Osborne is also due to announce a cap on rises for regulated rail fares, such as peak fares and season tickets. |
A planned rise of 8.2% - RPI inflation of 5.2% +3% - will be restricted to 6.2% (RPI +1%), with the cap also covering bus and Tube fares in London. | A planned rise of 8.2% - RPI inflation of 5.2% +3% - will be restricted to 6.2% (RPI +1%), with the cap also covering bus and Tube fares in London. |
The Treasury said its credit easing plan would not add to the country's deficit, according to BBC political correspondent Carole Walker. | The Treasury said its credit easing plan would not add to the country's deficit, according to BBC political correspondent Carole Walker. |
Our correspondent said: "They are sticking to that deficit reduction plan, but I think the chancellor does still face a lot of questions about how he is going to pay for things like those lower-than-expected rail fares, and that plan to tackle youth unemployment that we heard about." | Our correspondent said: "They are sticking to that deficit reduction plan, but I think the chancellor does still face a lot of questions about how he is going to pay for things like those lower-than-expected rail fares, and that plan to tackle youth unemployment that we heard about." |
Are you a small business? What do you think of the scheme? Will it help you? Send us your comments and experiences using the form below. | Are you a small business? What do you think of the scheme? Will it help you? Send us your comments and experiences using the form below. |