Business bank could raise risk of hit to state coffers

 
Tim Wallace
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CITY analysts, consultants and MPs yesterday rejected George Osborne’s plan for a business bank, claiming it would fail to help the economy and could end up doing more harm than good.

Conservative Douglas Carswell argued this is not the time for the government to take financial risks by underwriting firms’ debts.

“It is not as if the government has a great deal of money – it has debts of its own,” he told City A.M.

“State subsidised debt is going to make things a lot worse – years into the crisis the government is still using Gordon Brown’s policies.”

KPMG’s Giles Williams said the plan to boost lending will simply shift the problem into the future, rather than fix the underlying issues as pressure on bank funding is a long-term concern.

“The government will want to turn this credit off at some point, and the same problem will arise again,” he said.

And Citi’s Michael Saunders argued that even if the plan had a solid foundation, without extra cash from the government, it will be unable to boost lending.

“The banking system is not lending on anything like normal terms or a normal scale. It appears that the new scheme will not do this either,” he said.