Cameron credit plan for business

Business groups say one in three firms can't get credit now

David Cameron has called on the state to underwrite billions of pounds of loans to business to help firms get through the economic downturn.

The Conservative leader said new bank loans should be partly guaranteed in return for a fee to end the drought in credit threatening companies' survival.

In a speech, he said the government had taken its "eye off the economic ball" and proposed VAT cuts would not help.

Labour called the Tory plan a "fig leaf" to cover up their lack of action.

'Winter threat'

Chancellor Alistair Darling and Bank of England Governor Mervyn King have said further government action may be needed to kick-start bank lending amid signs that recapitalising the banks has not restored confidence.

This is a credit crunch and it needs credit solutions. David Cameron

The Tory proposal would see a government body temporarily set up to guarantee short-term credit and overdraft facilities to firms.

"This winter we face the deeply worrying prospect of fundamentally sound businesses going under because they can't get short-term credit," Mr Cameron said.

"This is a credit crunch and it needs credit solutions. That means using the government balance sheet to back new lending."

According to Mr Cameron, the scheme would be on a "different scale" and less "bureaucratic" than existing government programmes.

But Treasury minister Angela Eagle said there was nothing original in his proposals.

"We already provide guarantees through the export credit guarantee department, are working up detailed schemes for lending guarantees under the Crosby review and announced a further £2bn loans guarantee package to business in the pre-Budget report," she said.