George Osborne's '£1bn boost' for firms has lent out only £5m

Small print reveals the truth behind the Business Finance Partnership

Economics Editor

A scheme drawn up by George Osborne to channel £1.1bn in loan capital to businesses, unveiled to great fanfare in November 2011, has distributed just £5m.

In the Autumn Statement of 2011 the Chancellor announced the establishment of a Business Finance Partnership, a public-private co-investment fund which would supposedly result in some £1.1bn of funds being distributed to middle-sized firms struggling in the credit squeeze.

The plan was for the Government to put up half of the cash in the funds, with the balance coming from pension funds and insurance companies.

The theory was that the state support for the fund would encourage private institutions to come forward with loan capital.

In his Autumn Statement speech Mr Osborne boasted that this scheme, part of a wider programme of what he termed “credit easing”, would help to transform the lending landscape for businesses and enable them to bypass the large banks. “No government has attempted anything as ambitious as this before,” he said.

But the Treasury’s Annual Report and Accounts for the 2012/13 financial year, published this week, reveal that just £5m in loan capital had been distributed under the BFP by March of this year.

When asked why the outlay under the scheme had been so small to date the Treasury said that the BFP had only just become fully active, following an extensive preparation period.

The finance ministry also pointed to the estimates of the Office for Budget Responsibility in March that outflows of loans under the scheme would shoot up to £500m in the present financial year, with a further £400m lent in 2014-15. “We think we’re on track,” insisted a Treasury source.

But the meagre distributions under a scheme unveiled some 20 months ago are nevertheless likely to lead to suspicions that the scheme is the latest in a catalogue of Treasury business lending scheme flops.

The Bank of England statistics this week showed that net business lending fell by £4.5bn in the three months to May.

Lending to the business sector has been negative since the 2008-09 financial crisis, despite a host of government schemes. Small businesses have been especially hard hit by the failure of the banks to lend.

A Treasury spokesperson told The Independent: “Government is committed to diversifying the market so that alternative sources of finance are available to businesses. We expect to update on the progress of the Business Finance Partnership scheme in the months ahead.”

Last December the Treasury announced that five BFP funds were open, and that they would be run by Alcentra Limited, Ares Management Limited, Haymarket Financial, M&G Investment Management and Pricoa Capital. None responded to requests from The Independent to comment on how much interest they had had from investors.

In November 2011 the Chancellor said the BFP would be aimed at Britain’s middle-sized companies, which he described as a sector that had been “neglected for too long”.

Mr Osborne added: “It will give these mid-cap companies a new source of investment outside of traditional banks.”

Long history of failed attempts to boost lending

George Osborne has spent an inordinate chunk of his time in office examining ways to increase the flow of lending to businesses, but with little success.

First, in 2011 there was Project Merlin under which the big banks agreed to lend £190bn to UK firms in exchange for being allowed to pay large bonuses to their employees. The problem was that these were gross, not net, lending targets. By making loans available to some firms and taking credit facilities away from others, banks could hit their quotas while actually shrinking their overall loan books. That is precisely what happened. Net lending to business fell in every month of 2011.

The following year the Treasury set up the National Loan Guarantee Scheme. It was supposed to encourage banks to lend by guaranteeing £20bn of their wholesale borrowing over two years under the condition they passed the money to small businesses. Treasury accounts reveal just £2.9bn in guarantees were made under the scheme.

Last summer, the Bank of England established the Funding for Lending Scheme (FLS). This offers banks cheap credit in return for them lending to small firms and households. It has boosted the supply of loans to mortgage borrowers, but businesses have seen little benefit. Participating lenders had drawn down £16.5bn under the scheme by the end of March, while also shrinking their aggregate stock of lending by £1.8bn. In April the Bank announced that the FLS incentives for small business lending would be sharpened.

Arts and Entertainment
The cast of The Big Bang Theory in a still from the show
tvBig Bang Theory filming delayed by contract dispute over actors' pay
England celebrate a wicket for Moeen Ali
sportMoeen Ali stars with five wickets as Cook's men level India series
peopleGuitarist, who played with Aerosmith, Lou Reed and Alice Cooper among others, was 71
Robyn Lawley
i100  ... he was into holy war way before it was on trend
Life and Style
lifeDon't get caught up on climaxing
Life and Style
food + drinkVegetarians enjoy food as much as anyone else, writes Susan Elkin
Arts and Entertainment
Harry Potter (Daniel Radcliffe), Hermione Granger (Emma Watson) and Ron Weasley (Rupert Grint)
newsBloomsbury unveils new covers for JK Rowling's wizarding series
scienceScientists try to explain the moon's funny shape
Usain Bolt confirms he will run in both the heats and the finals of the men's relay at the Commonwealth Games
commonwealth games
ebookA unique anthology of reporting and analysis of a crucial period of history
peopleHowards' Way actress, and former mistress of Jeffrey Archer, was 60
Life and Style
Troy Baker and Ashley Johnson voice the show’s heroes
gamingOnce stilted and melodramatic, Hollywood is giving acting in video games a makeover
Arts and Entertainment
As Loki in The Avengers (2012)
filmRead Tom Hiddleston's email to Joss Whedon on prospect of playing Loki
voices In defence of the charcoal-furred feline, by Felicity Morse
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

1st Line Support Technician / Application Support

£20000 - £24000 per annum: Harrington Starr: A leading provider of web based m...

Team Secretary - (Client Development/Sales Team) - Wimbledon

£28000 - £32000 per annum: Ashdown Group: Secretary (Sales Team Support) - Mat...

Accountant / Assistant Management Accountant

Competitive (DOE): Guru Careers: We are looking for an Assistant Management Ac...

Senior Investment Accounting Change Manager

£600 - £700 per day + competitive: Orgtel: Senior Investment Accounting Change...

Day In a Page

Save the tiger: The day America’s love of backyard tigers led to a horrific bloodbath

The day America’s love of backyard tigers led to a horrific bloodbath

With only six per cent of the US population of these amazing big cats held in zoos, the Zanesville incident in 2011 was inevitable
Samuel Beckett's biographer reveals secrets of the writer's time as a French Resistance spy

How Samuel Beckett became a French Resistance spy

As this year's Samuel Beckett festival opens in Enniskillen, James Knowlson, recalls how the Irish writer risked his life for liberty and narrowly escaped capture by the Gestapo
We will remember them: relatives still honour those who fought in the Great War

We will remember them

Relatives still honour those who fought in the Great War
Star Wars Episode VII is being shot on film - and now Kodak is launching a last-ditch bid to keep celluloid alive

Kodak's last-ditch bid to keep celluloid alive

Director J J Abrams and a few digital refuseniks shoot movies on film. Simon Usborne wonders what the fuss is about
Once stilted and melodramatic, Hollywood is giving acting in video games a makeover

Acting in video games gets a makeover

David Crookes meets two of the genre's most popular voices
Could our smartphones soon be diagnosing diseases via Health Kit and Google Fit?

Could smartphones soon be diagnosing diseases?

Health Kit and Google Fit have been described as "the beginning of a health revolution"
Ryanair has turned on the 'charm offensive' but can we learn to love the cut-price carrier again?

Can we learn to love Ryanair again?

Four recent travellers give their verdicts on the carrier's improved customer service
Billionaire founder of Spanx launches range of jeans that offers

Spanx launches range of jeans

The jeans come in two styles, multiple cuts and three washes and will go on sale in the UK in October
10 best over-ear headphones

Aural pleasure: 10 best over-ear headphones

Listen to your favourite tracks with this selection, offering everything from lambskin earmuffs to stainless steel
Commonwealth Games 2014: David Millar ready to serve up gold for his beloved Scotland in the end

Commonwealth Games

David Millar ready to serve up gold for his beloved Scotland in the end
UCI Mountain Bike World Cup 2014: Downhill all the way to the top for the Atherton siblings

UCI Mountain Bike World Cup

Downhill all the way to the top for the Atherton siblings
Save the tiger: The animals bred for bones on China’s tiger farms

The animals bred for bones on China’s tiger farms

The big cats kept in captivity to perform for paying audiences and then, when dead, their bodies used to fortify wine
A former custard factory, a Midlands bog and a Leeds cemetery all included in top 50 hidden spots in the UK

A former custard factory, a Midlands bog and a Leeds cemetery

Introducing the top 50 hidden spots in Britain
Ebola epidemic: Plagued by fear

Ebola epidemic: Plagued by fear

How a disease that has claimed fewer than 2,000 victims in its history has earned a place in the darkest corner of the public's imagination
Chris Pratt: From 'Parks and Recreation' to 'Guardians of the Galaxy'

From 'Parks and Recreation' to 'Guardians of the Galaxy'

He was homeless in Hawaii when he got his big break. Now the comic actor Chris Pratt is Hollywood's new favourite action star