Business bank will not start lending until 2014

BUSINESS groups last night gave a cautious welcome to Vince Cable’s announcement of a £1bn government-backed bank for small firms – but criticised the timeframe and lack of detail on its implementation.

The business secretary yesterday committed the government to allocating £1bn to the institution, which will operate in the wholesale market and support the supply of loans to smaller firms through existing banks. Full details will be unveiled in the Autumn Statement on 5 December, though it is unlikely that the institution will be up and running before 2014.

“By bringing together all existing support into a one-stop shop, and by increasing the supply of capital to firms that want to grow long-term, the business bank has the potential to support lending and help small and medium-sized businesses to grow,” said John Cridland, CBI director-general.

Meanwhile John Longworth, head of the British Chambers of Commerce, said the plan could be one of the “lasting legacies of this government, and a key pillar of UK competitiveness in the years to come”.

“The government must now work swiftly to gets the bank up and running so that it can start helping small and medium-sized businesses as quickly as possible,” he added.

However Mark Littlewood, director general of the Institute of Economic Affairs, said the proposed institution is “unlikely to have any impact on the short-term problems faced by businesses” and that it will be “seven years after the early events of the crash” before the first loans are made.

“The government should not be taking the risks from business lending that banks are not willing to bear themselves,” he added.

Meanwhile last night Treasury sources confirmed to City A.M. that the government is set to guarantee the £1bn order for new trains for the Crossrail as part of a new scheme to boost investment in infrastructure.

Danny Alexander, chief secretary to the Treasury, will today announce that the privately-funded part of the deal will receive government backing in an attempt to reduce lending costs for the order, reduce the chance of a delay and bring spending forward.