Osborne announces £140bn scheme to kickstart small business lending

But critics remain concerned about effect of the Eurozone crisis

George Osborne last night unveiled a £140bn credit-easing scheme to encourage the UK’s banks to lend to small businesses.

The chancellor of the exchequer, who made the announcement in his annual Mansion House speech at the Lord Mayor’s banquet for bankers, said: “We are not powerless in the face of the euro-zone debt storm [and]…will not stand on the sidelines and do nothing as the storm gathers.

“We are rolling up our sleeves and doing everything possible to protect British families and firms.”

Under the new scheme, high street banks will be able to temporarily swap assets, such as mortgage books, with the Bank of England, in return for cash that can be used to offer new loans to customers..

It is hoped the initiative will prevent loans being rationed to entrepreneurs and mortgage-seeking families, and will prompt banks to lend an extra £80bn.

From today, banks will also be able to access an emergency Bank of England liquidity scheme, whereby at least £5bn will be made available to the banks each month to maintain the flow of credit to small businesses.

This scheme is expected to run for six months.

However, some critics remain skeptical of the government’s latest action, after the Project Merlin initiative it announced last year recorded disappointing results.

Christopher Shaw, CEO of alternative finance provider Platform Black, said: “It’s encouraging to see the Chancellor take the bull by the horns, but will this new scheme result in a genuine rise in lending from the banks, or be mere bravado?

“This scheme is a tacit admission that Project Merlin was a failure [and] even if this scheme genuinely creates liquidity, will British consumers and businesses want to borrow? The current environment is hardly one that favours risk.”

Emma Jones, co-founder of StartUp Britain, added: “Small businesses, and start-ups in particular, have been struggling to find the essential funding they need to help their businesses to grow.

“If we are going to be competitive and allow this new crop of diverse businesses to flourish, we need to remove the barriers to growth and seize the opportunity to be ahead of the game, whatever is going on around us.”

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