Mandelson’s billion pound business support package is not enough say key business leaders

The business community also put the spotlight back on to the banks, saying the amount they were prepared to lend remained central to the problems caused by the fallout from the credit crunch.

Business secretary Lord Mandelson has been looking at how to help small and medium-sized companies cope with problems of cash flow, lack of credit and investment requirements. The centrepiece of his plan is a £10bn scheme which will be used to provide guarantees covering 50% of loans to businesses with a turnover of up to £500m a year – thereby securing short-term lending of £20bn for the sector.

Other measures include £1bn to back longer term loans to small businesses and a new £75m fund to invest in small companies with high levels of existing debt.

Mandelson said the government was also looking at how to help firms hit by a cut in their credit insurance which makes suppliers reluctant to do business with them. At the same time the business department announced it had appointed Mervyn Davies, the highly regarded chairman of Standard Chartered, as minister for trade and investment.

Mandelson said: “UK companies are the lifeblood of the economy and it is crucial that the government acts now to provide real help to support them through the downturn and see them emerge stronger on the other side.”

Low risk

Mandelson said the government would be paid for the guarantee and the risk would be relatively low, though he said it would make a £225m provision against guaranteed loans that went bad.

The EEF, which represents many of Britain’s manufacturers, said the move was a “welcome first step”. However a spokesman added: “The key problem remains the banks’ willingness to lend to viable businesses. The government has got to maintain resolute pressure on the banks to step up their lending as a matter of urgency.”

Both the British Chambers of Commerce and the Forum of Private Business took similar lines. “We support these measures and expect the banks to start lending to business with immediate effect.

If a rapid take-up highlights the need for more financial support then we would expect the government to work with the banks to extend the package,” the BCC’s director general, David Frost, said.

The FPB’s chief executive, Phil Orford, said some companies would be able to get much needed finance but others would still face difficulties. “The package is a welcome step but only the next step forward in a longer process of freeing up credit and stimulating the economy.”

In his downbeat assessment the CBI’s Lambert said: “The impact of a damaged banking system on ordinary business has reached a critical stage and although today’s package will undoubtedly help many hard pressed firms it is silent when it comes to larger companies.”

Specific solutions

Mandelson described the package as one which offered specific solutions – “not a blanket subsidy”. “This … offers not slogans but real targeted help to those firms that need it most, while ensuring the banks are not insulated from normal commercial risk. It addresses the problem at the heart of the credit crunch: credit for viable businesses.” Banks welcomed the plans but privately admitted there was still a lot of work needed to put the proposals into practice. There is also little clarity on how much they will pay for the taxpayer guarantees and how it will be funded.

Some said that while the government had widened its scope since the pre-budget report from small businesses to medium-sized ones, there were looming issues for some of Britain’s biggest firms in getting credit for everyday operations.

One banking source said: “These plans are helpful at the margin but they are more about the government’s political agenda than about getting banks lending again.”

At a glance

• Working capital scheme: Aims to provide up to £20bn of short-term bank lending to firms with a turnover of up to £500m. Banks submit a portfolio of loans to the business department and it will guarantee 50% of the value of the portfolio, ie up to £10bn

• Enterprise finance guarantee scheme: Will support up to £1.3bn of new lending by banks to viable small and medium-sized businesses with working capital and investment needs

• Capital for enterprise fund: a £75m fund to allow businesses to sell debt in exchange for equity. Of this, £50m will come from the government and £25m from the banks

Give us your opinion :- Do you think this package of assistance will aid your business or businesses in your client base or supply chain?