Page last updated at 14:20 GMT, Tuesday, 13 January 2009

Ministers plan 20bn loan scheme

Peter Mandelson on how the government intends to help businesses

Ministers are considering plans to guarantee up to 20bn of loans to small businesses to help them survive the downturn, the BBC has learned.

In return for a fee, the state would effectively insure banks against firms defaulting on their payments.

Business Secretary Lord Mandelson said the plans would be "really effective" and target "genuine business needs".

The Tories want ministers to underwrite 50bn of loans, while the Lib Dems have accused Labour of "stunts and wheezes".

Debt concerns

In recent days, Gordon Brown has suggested that further measures to help businesses struggling to get by in the current economic climate were imminent.

The BBC understands ministers have met to draw up plans to provide loan guarantees to firms amid concerns that the banking crisis is threatening the survival of thousands of businesses.

I want to make sure that, when we intervene, we intervene in a way that's really effective
Lord Mandelson

The BBC's Business Editor Robert Peston said three types of credit guarantees would be offered, aimed at firms most in need and those of most significance to the economy.

Firstly, support for up to 10bn in short-term loans for medium-sized firms to help them meet their day-to-day financing needs.

Secondly, backing for loans to help financially sound but credit-starved companies with long-term investment, with specific support for exporters and companies with high-value jobs and products.

Thirdly, capital for strategically important small businesses which have overextended themselves during the credit boom.

Shadow chancellor George Osborne gives his view of the plans on Daily Politics

The BBC understands that the potential cost to the government of the guarantees, in terms of public spending and liabilities should loans not be repaid, will total several hundred million pounds.

The prime minister's spokesman said the government was considering options to ensure businesses and households get access to credit.

He added there would be "no irresponsible blanket guarantees" and that any measures would be "targeted, thought through and funded".

Lord Mandelson, who is expected to give a statement this week, said: "I want to make sure that, when we intervene, we intervene in a way that's really effective, really targets real, genuine business needs in a way that gives value for money from the government and the taxpayer's point of view, and is genuinely going to help businesses in what is a very difficult credit situation."

'Dithering'

The Conservatives want a larger 50bn national loans guarantee scheme to get credit flowing again and help firms being affected by the unwillingness of banks to lend due to the impact of the credit crunch.

They say this would not expose the taxpayer to any risk, being effectively self-financing, but Labour claims that is totally unrealistic.

The dithering in government has cost the jobs of many people
George Osborne

Shadow chancellor George Osborne told the BBC: "The Conservative Party has been proposing the scheme now for more than two months.

"The dithering in government has cost the jobs of many people."

Liberal Democrat Treasury spokesman Vince Cable said: "The government should stop messing around with stunts and wheezes and ensure that the banks owned or part owned by taxpayers operate as state banks maintaining lending for the economy.

"The government has already invested 37bn of taxpayers' money recapitalising the banks. It has bottled out of ensuring that the banks comply with their undertaking to maintain lending to sound businesses.

"There can be no justification whatsoever for this huge sum of money being held back from good commercial borrowers."

'Bad hole'

Labour's credit proposals received a mixed response from business.

The CBI described the move as a good "first step" which would address the most chronic problem facing companies.

But entrepreneur and venture capital boss Jon Moulton said the proposed assistance was not nearly substantial enough.

He told MPs on the Treasury Select Committee that the 20bn was "not actually a very large number against the scale of the problems we are talking about".

"I would personally be happy if the scheme was a lot larger," he added. "We are in a bad hole and we need to get out of that hole."

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