Osborne's £20bn loan guarantee scheme to be launched before Budget

Jim Armitage
Wednesday 07 March 2012 01:00

After days of attacks from the Opposition over the slow progress of its help for small businesses, the Chancellor yesterday finally announced that his £20bn loan scheme would go live before this month's Budget.

George Osborne's so-called "credit easing" programme will see the taxpayer guaranteeing up to £20bn of loans for banks to lend to small and medium-sized businesses.

Banks will take the hit if the business goes bust or fails to repay the loan, but the government guarantee on the original fund means the banks will obtain the money they are lending at a very low interest rate which can be passed on to small businesses.

While business associations welcomed the announcement, they reserved judgement until seeing the final details.Entrepreneurs still feel raw about the abject failure of previous initiatives like Project Merlin, which aimed, and failed, to get lending going.

"Of course we are pleased but we don't think this is going to be a silver bullet by any means," said Graham Fisher, head of policy at the Federation of Small Businesses.

"Implementation is all. Have they learned the lessons from previous efforts like the Enterprise Finance Guarantee scheme, where take-up was tiny?"

Mr Osborne had faced repeated criticism from Labour over the issue. Chuka Umunna, the Opposition business spokesman, last week made repeated references to delays to the scheme, saying: "It's over four months since the Chancellor proposed to implement this scheme and we're still waiting."

Treasury sources pointed out that the Chancellor had formally announced in the November Autumn Statement that the scheme would be in place before the Budget and he would now keep that promise.

However, with the scheme now likely to start as little as two days before the 21 March Budget, the Government gave the clear impression of policy being rapidly accelerated to take ammunition away from the Opposition. The Government is known to be concerned about looking powerless to help small businesses seen as crucial to get the economy growing again.

Mr Osborne told MPs: "On credit easing, I can confirm, subject to the final EU state approval which we expect to get in the next week, we will have the scheme up and running before the March 21 Budget."

Under the credit easing plan, known as the National Loan Guarantee Scheme, the banks pay the Treasury a fee for the guarantee. Banks are on the hook for any loans to businesses that go wrong, but if the bank itself were to go under, the taxpayer loses out.

Other plans mooted include a scheme where banks lend to small businesses then package the loans into securities that can be traded by investors.

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