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Business lending proposals 'could result in firms accessing government cash'

Date Added: 12/10/2011  

The government's proposals to overhaul business lending could result in it extending loans to small companies directly, according to an industry commentator.

Tim Leunig, chief economist of Centre Forum, stated that nobody knows how the plan of credit easing would work in practice, after it was unveiled by chancellor George Osborne in a speech at the Conservative Party conference recently.

Speaking on the Guardian podcast titled The Business podcast at Conservative conference 2011: George Osborne goes for growth, he explained he would be "surprised" if it turned out the coalition government intends to lend directly to small firms in a bid to support them and foster growth of the UK economy.

Mr Leunig said: "It will be very expensive if they were and there would always be the danger that lots of people would come along to try and scam the government and not pay it back."

He compared the proposals to quantitative easing - where the Bank of England prints off more money in a bid to support the economy - but with "bells and whistles on".

The specialist noted previous rounds the asset purchasing system have ended up working well for small businesses, so it could prove to be a good move for those in danger of being served with a winding up order, or companies seeking to avoid the threat of liquidation.

Mr Leunig added that Mr Osborne's speech at the conference did not contain a lot of positivity and it is clear the coalition government does not have much idea of how the economy will be faring in around 12 months time.

Business secretary Vince Cable has already been quoted by the Sun as saying he does not believe the plans outlined by the chancellor will have the result of boosting business lending.

He explained there is still a problem and noted the Project Merlin deal between the banks and the government was set up to improve the situation.

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Posted by Michael Beam

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