New £80bn bank lending scheme could usurp initial credit easing plan

Mark Prisk, the business minister, is expected to outline details of a new “funding-for-lending” scheme today in an attempt to help drag Britain out of its double-dip recession reports The Telegraph.

The move comes amid suggestions last night that the Government’s initial lending initiative, the National Loan Guarantee Scheme, was being effectively sidelined to make way for the new loans scheme, which will make discounted loans available to businesses and households over the next 18 months.

A Treasury source last night admitted that the new “funding-for-lending” scheme would be likely to prove more popular with banks as, unlike with the National Loan Guarantee Scheme, they are under no obligation to pass on the discount they receive on loans to businesses.

The government’s initial loan guarantee plan began in March, with the aim of making £20bn of discounted loans available to small companies. To date, 16,000 companies are understood to have applied for loans worth £2.5bn under the plan, which is designed to compensate for the bank’s reluctance to lend, raising concerns among industry experts over low take-up.

The flagship scheme’s rules, including forcing banks to pass on all of the discount they receive onto to small and medium sized businesses, are thought to have acted as a deterrent to lenders.

However, the Treasury source said the National Loan Guarantee Scheme is expected to run its two-year course, and claimed the programme was still on track to lend the full £20bn outlined by the Chancellor in his autumn statement last year.

The new funding-for-lending scheme is not replacing the initial loans guarantee initiative, and is being billed as an extension of the Government’s credit easing plan designed to help struggling families and businesses.

The Government hopes that easier access to cheaper bank borrowing will boost spending in the economy, for example by allowing families to purchase homes, or by allowing firms to finance investment in new and productive enterprises. In turn, higher spending should boost job creation.

Vince Cable, the Business Secretary, told MPs earlier this month that bank lending was “not in great shape” due to a lack of demand and regulatory pressures on banks.