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State bank launched to boost business lending

Date Added: 03/09/2012  

Chancellor of the exchequer George Osborne has announced he is planning to open a new state-backed bank that will be aiming to improve business lending in the UK.

The Conservative MP announced his plan over the weekend and it is the latest scheme from the coalition aimed at getting the country's banks to lend to firms.

Britain's economy is currently in the deepest double-dip recession for decades and it is believed small businesses hold the key to the recovery in the coming months and years, reports the Financial Times.

However, reaction to Mr Osborne's plans to bring in a new state-backed bank - an idea that was previously floated by the business secretary Vince Cable - has been mixed.

The Federation of Small Businesses (FSB) has claimed it is going to be a success and will open up more access to credit for the country's smaller companies that have been unable to have loan applications approved by high street lenders over the course of recent years.

John Walker, national chairman of the FSB, claimed that as many as a third of firms have been missing their growth opportunities as a result of not getting all the credit they need to expand, adding: "We believe this bank will help firms grow and invest and get the recovery back on track."

A Treasury official suggested that the state-backed bank would not have any high street branches, at least initially, instead operating on the internet.

"It would feel more like a bank from the point of view of business," the representative noted, adding the aim would be pulling together in a single bank the "plethora" of small business assistance that is already provided by government through various departments.

But the idea has already been met with resistance from some quarters, with Tony Dolphin, chief economist at thinktank IPPR, among the dissenting voices.

In a column published by the New Statesman, he argued a proper British investment bank is needed to haul the economy out of the recession rather than Mr Osborne's plan, which he derided as a half-measure.

This is not the first time the chancellor has tried to boost the economy by improving business lending, with the Project Merlin initiative deemed to be a failure.

That scheme gave high street lenders a series of lending targets to hit, but many of them were unable to reach the figures expected by the government and firms complained that it had not made it any easier for them to have applications for loans accepted.

Mr Dolphin accused the chancellor of lacking ambition in his new business lending plan, noting the early signs for the scheme are not encouraging.

"What small businesses really want is an increase in the amount of credit available to them and a reduction in the cost of that credit. It is not immediately apparent that the chancellor's new bank will deliver on these aims," he said.

It was pointed out that Mr Osborne may have taken inspiration from some of the successful state-backed plans around the world including the KfW in Germany and the Small Business Administration in the United States, with the latter said to be the one the Conservative's plan most closely resembles.

Sky News' economic editor Ed Conway was another of the commentators to question whether the new bank would make a difference to business lending in the UK, pointing out that it looks more like the repackaging of what is already offered by the government than anything new.

According to data recently collected by Bibby Financial Services, close to one in three (32 per cent) firms have been unable to secure finance in the past 12 months, while only nine per cent of the respondents to the study stated they have received the amount of funding they applied for.

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