Page last updated at 15:07 GMT, Monday, 3 November 2008

Darling pledges business support

Chancellor Alistair Darling on the importance of supporting small businesses

Alistair Darling has said it is vital to support small businesses through the downturn after announcing extra financial assistance of up to 4bn.

The chancellor says the funding from the European Investment Bank will be made available to small and medium sized firms through High Street banks.

It was in the interest of banks to support business customers in difficult as well as good times, he added.

But employers expressed concerns about the number of banks likely to sign up.

The Conservatives said Labour was increasing taxes for small business and argued that what small firms really wanted was a "sustained reduction" in interest rates.

The Lib Dems called for a code of conduct governing the terms on which a bank could cease providing credit to a business.

Traditional lending by the banks has dried up due to the credit crisis.

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There are fears that thousands of firms could go out of business in the coming months, with lobby groups warning that small businesses are suffering a "lethal cocktail" of falling sales and rising costs.

The government has made its multi-billion pound bailout of three of the UK's largest banks conditional of them restoring the availability of funds available to small businesses to 2007 levels.

However, there has been little sign of this happening yet and the government has said the European money - which will be lent to banks participating in the initiative and passed onto their customers - will provide vital extra support for many businesses.

'Lifeblood'

At a meeting with the head of the European Investment Bank - the lending arm of the European Union - Mr Darling said up to 4bn in additional funds could be available over the next four years.

Small firms were the "lifeblood" of UK business and access to regular and predictable funding was "crucial to their survival", he argued.

"Our economy needs these strong small businesses and strengthening them will need our help," he said.

Banks have already applied for 1bn of funding, Mr Darling explained, and he urged more lenders to "seize the opportunity" to get involved with the EIB's scheme.

It is intended firms will be able to use the money for a range of purposes, from providing basic working capital to funding specific areas such as research or distribution.

We need to be assured that this money will actually filter down to small businesses
John Wright, Federation of Small Businesses

Business Secretary Lord Mandelson, who also attended the meeting, said there was "real anxiety" about access to bank funding and said assisting small business was "top of our agenda".

Speaking later, Gordon Brown said he was "delighted" the extra funding would be available and he urged banks "not to change the terms of and charges for existing lending to small businesses".

Mr Darling acknowledged that not every business would be able to receive funds and that the final decision about the sums offered would be taken by the banks themselves.

However, he said strong businesses would benefit and the scheme would help to return the amount of bank finance for business to levels before the onset of the credit crunch.

Employers groups welcomed the scheme but said it was essential that small businesses, no matter who they banked with, could gain.

Vince Cable
Many companies report that their credit lines are being cut arbitrarily. This is simply not on
Vince Cable, Lib Dem Treasury spokesman

John Wright, chairman of the Federation of Small Businesses, said of the major High Street banks, only Barclays was currently signed up to offer loans through the EIB.

"We need to be assured that this money will actually filter down to small businesses," he said.

"The government and the EIB must do much more to promote this availability of funds."

Lib Dem treasury spokesman Vince Cable said the government must take a much tougher line on banks to ensure lending was sustained.

"The government should not simply sit in the background hoping vaguely that the banks will comply," he told the BBC.

He called for a code of conduct for bank lending which would require businesses to be given at least 28 days notice if their funding is to be cut and the reason why.

"Many companies report that their credit lines are being cut arbitrarily. This is simply not on."

'Financial mess'

Mr Darling has also defended the government's new approach to fiscal policy, outlined in a speech on Wednesday.

He paved the way for the government to relax its rules on borrowing and debt by stating it would be "perverse" to apply them rigidly during a recession and it was "sensible" to raise borrowing now.

"History tells us when the economy slows down if the government stops spending money we make a difficult position worse," he said.

The opposition has warned ministers against a "spending splurge", saying it will cause further damage to the public finances.

Mr Osborne challenged the chancellor to come up with a "clear plan to get the public finances back under control".

In the Commons, he argued that the government was set to leave the largest budget deficit of any Labour administration in history.

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SEE ALSO
Darling backs Bank's rate policy
30 Oct 08 |  Business
Darling set to relax fiscal rules
29 Oct 08 |  UK Politics
Fiscal rules are dead - Cameron
29 Oct 08 |  UK Politics
Darling spending plan 'misguided'
26 Oct 08 |  Business

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