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Osborne plans billions in 'credit easing' loans Osborne backing up to £40bn 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. Chancellor George Osborne will unveil credit easing schemes to release up to £40bn 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. Under one 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. Loans of £20bn will be involved initially but this could be doubled.
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. Mr Osborne is proposing three schemes in an attempt to boost economic growth.
Those institutions would then be obliged to pass on the cheap lending rates to small and medium-sized companies. The first scheme would see the government provide a guarantee for banks to borrow on the financial markets.
"The government will underwrite the loans the banks make to small businesses in order to cut the interest rates the small businesses pay," the chancellor told BBC One's The Andrew Marr Show.
"We are making available £20bn for the National Loan Guarantee Scheme, however it sits within an envelope that could be as large as £40bn.
"These are guarantees, we are not borrowing this money, we are underwriting the loans that are being made".
It is understood that the second £20bn of loan guarantees are being held in reserve for the moment but could be made available in the next two years.
The money comes from the Asset Purchase Facility set up by the previous Labour Chancellor Alistair Darling.
It is said to be similar to the Labour government's credit guarantee scheme of 2008, launched in the wake of the credit crunch.It is said to be similar to the Labour government's credit guarantee scheme of 2008, launched in the wake of the credit crunch.
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.
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.
'Game changer''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.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 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".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.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.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."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.""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".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.