Page last updated at 14:02 GMT, Friday, 9 January 2009

Tories step up pressure on Brown

Shadow chancellor George Osborne
George Osborne says businesses urgently need more help

The Conservatives have stepped up pressure on the government to introduce a 50bn loan guarantee scheme to help businesses fighting recession.

Shadow Chancellor George Osborne urged the prime minister to back the Tory plan to avoid the "desperate last resort" of printing money.

But the government says it is already planning action to open lines of credit for small and medium-sized firms.

Business Secretary Lord Mandelson said the Tories were "catching up with us".

He told BBC Radio 4's The World at One: "We have already announced in the pre-Budget report schemes that will enable us to focus on the needs of small and medium-sized companies in particular, to bring into existence greater amounts of working capital for the banks to use in extending credit as well as guaranteeing loans to the SME sector in particular."

He said the government would "make operational" the schemes announced in the pre-Budget report "in the next couple of weeks".

The Tories have criticised the government's plans to underwrite business loans, thought to total 1bn, as inadequate to cope with firms' needs.

They have tabled an amendment to the Banking Bill proposing a 50bn national loan guarantee scheme, which will be debated in the House of Lords when Parliament returns next week.

It's rather bizarre that [the Tories] are making proposals that would potentially expose the taxpayer to vast, open-ended liabilities
Vince Cable, Lib Dem treasury spokesman

In a speech to the Policy Exchange think tank, Mr Osborne said the amendment "presents the prime minister with a clear choice".

"He can support the radical action needed to limit the effects of the recession or he can continue to achieve nothing.

"The most recent data show that the number of company liquidations has risen from 241 a week to 304 a week in the space of a year, and that's even before taking the last few months into account.

"That's almost 10 businesses a day going under because of the credit crunch.

"Every day that Gordon Brown dithers, he is putting at risk people's jobs and livelihoods and futures. That's why we need action and action now.

The national loan guarantee scheme is a 50bn plan to underwrite bank loans to businesses.

'Open-ended liabilities'

The Conservatives say the scheme would not add to government borrowing and would include a fee, acting as a premium, to offset the risk to the taxpayer.

Mr Osborne claimed the Treasury supported such a scheme but there was a "political blockage" that may prevent it from being adopted.

He said Mr Brown may not want to adopt it because it was a Conservative plan and he urged the prime minister to set aside partisan concerns to do what was best for the British economy.

To stand any chance of becoming law, the Conservative amendment will need the backing of rebel Labour MPs and the Liberal Democrats.

But it was rejected by Lib Dem Treasury spokesman Vince Cable, who said it risked exposing taxpayers to "vast liabilities" and he called on the government to take a more-hands on approach to the partially-nationalised banks instead and force them to start lending again.

"Considering the Tories express such concern about the public finances, it's rather bizarre that they're making proposals that would potentially expose the taxpayer to vast, open-ended liabilities," added Mr Cable.

The Conservatives should admit they were wrong to oppose Labour's plans to give real help now - when families and businesses need it most

Angela Eagle, Treasury minister

The row comes as the latest official figures showed nearly 10 companies are going bust every day because of the credit crunch.

In his speech Mr Osborne also mounted a sustained attack on Mr Brown's handling of the downturn, including the government's 12bn VAT cut which he said had not had the desired effect of boosting consumer spending.

"The country's largest retailers, from Marks & Spencer to Next, joined with former Labour ministers to condemn the government's fiscal stimulus - the temporary VAT cut - an expensive failure.

"And the chancellor of the exchequer not only attempted to wriggle out of the optimistic economic forecasts he made just a few weeks ago, but also encouraged open speculation that the government was considering the desperate step of starting to print money."

Responding to Mr Osborne's attack for the government, Treasury minister Angela Eagle said the shadow chancellor had "missed another opportunity to admit the Tories have made a fundamental error of judgment in failing to support the growing international consensus that governments need to invest to stimulate their economies during the global downturn".

She added: "At a time when America and Germany are gearing up to launch big fiscal stimulus packages, the Conservatives should admit they were wrong to oppose Labour's plans to give real help now - when families and businesses need it most."

Job cuts

On Wednesday, Chancellor Alistair Darling told the Financial Times he was considering a policy of "quantitative easing" to increase money supply to the economy.

But he later played down the possibility, saying he was looking at "a range of measures" and "nobody is talking about printing money".

The Bank of England announced a further cut in interest rates on Thursday, taking them to historically low levels of 1.5%.

But the news was overshadowed by Nissan's announcement it is cutting 1,200 jobs at the UK's biggest car plant in Sunderland.

Conservative leader David Cameron is travelling to north-east England to meet Nissan bosses, while Prime Minister Gordon Brown completes his tour to study the effects of the downturn with a visit to Swindon and South Wales.

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