While addressing the Liberal Democrat conference today, Business Secretary Vince Cable is to announce a government investment of £1bn to launch a “business bank” designed to provide UK SMEs with easier access to lending.
The bank will start operating within 18 months, through existing lenders and with the hope that state money will be matched by the private sector.
Pledging to fight “the British curse of short-termism” and provide a stronger strategy to help the UK out of the recession, Mr Cable will say: “We need a new British Business Bank with a clean balance sheet and an ability to expand lending rapidly to the manufacturers, exporters and high-growth companies that power our economy.
“Today I can announce we will have one. I am working with the chancellor to develop a state-backed institution that will combine up to a billion pounds of new government capital with a larger private sector contribution.
“This will then apply further leverage through guarantees to support up to £10bn of finance to SMEs – a significant portion of all the lending available.”
John Longworth, director general of the British Chambers of Commerce, told the BBC: “The funding announced by Vince Cable is the first step in a journey toward a British business bank that enables new and growing companies to get access to capital in the same way that they do in Germany, South Korea, and the USA.”
Responded to the proposal from Dr Cable for a new business bank. John Cridland, CBI director-general, said: “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.
Deeming the new institution a “step in the right direction”, Steve Radley, director of policy at manufacturers’ organisation EEF, said: “The government has chosen the right model in using this new institution to provide a cheaper source of wholesale funding that will support lending to business without exposing the taxpayer to the risk associated with setting up a State Bank that would lend directly to it.
“The government now needs to move quickly to map out how this will work and also develop a more competitive financial landscape where business can choose between a range of finance providers rather than relying on a small number of big banks.”