Osborne wants to lend directly to small firms

Tim Wallace
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A STATE-BACKED bank to lend specifically to small firms and entrepreneurs will be set up, chancellor George Osborne said yesterday – though critics worried the move would just expose the government to more financial risks.

The chancellor said he is looking at setting up a business bank to “bring together the alphabet soup of existing schemes and potentially have additional powers because small firms are the innocent victims of the credit crunch”.

However the Treasury does not expect that any extra money will be used to create this bank – schemes like the enterprise finance guarantee will be rolled into it.

The British Chamber of Commerce (BCC) praised the plan.

“This institution would be a game-changer for long term growth,” said director-general John Longworth.

“The Prime Minister should use his upcoming reshuffle to appoint a minister to spearhead the bank’s creation by the end of this parliament, and involve the opposition in the process.”

But Labour’s Chuka Umunna told City A.M. this plan simply shows the government’s previous lending schemes have failed.

“This suggests the chancellor is not confident credit easing or funding for lending will solve firms’ financial problems in the way he promised.”

And analysts at the Institute for Economic Affairs fear the state would lend to risky firms.

“The proposed bank would expose taxpayers to huge financial risks and further jeopardise already precarious public finances,” said the think-tank’s Richard Wellings.