Government plans to unblock lending hailed

Jan 14 2009 by Kathryn Smith, Evening Gazette

TEESSIDE business leaders have welcomed a multi-billion package of measures aimed at unblocking lending to small firms, which was due to be unveiled by the government today.

It includes loan guarantees and a new enterprise fund to help companies struggling to access finance.

Middlesbrough-based John Wright, chairman of the Federation of Small Businesses, which has been calling for similar measures since October, said: “The government has done slightly better than we asked for.

“Small businesses are the beginning of the supply chain and what we are finding is supermarkets and manufacturers coming out now saying they are concerned about suppliers at the bottom end. This is an economic war against global recession and if we can save just one viable business, it will have been worth it.”

While welcoming additional money in the lending market, Alastair Thomson, dean of Teesside Business School, sounded a note of caution.

“The danger is that we will get schemes piled on top of schemes and sometimes the complexity of the system makes it so difficult that people do not bother and so it makes no difference.”

He said there was “a strong argument” for government to put pressure on those banks it now effectively owned to lend more, but he also called for it review what he described as “punitive” rates of interest charged on government loans to the banks.

“If you added up all the money that government has lent and multiplied it by the interest they are charging I suspect you would come somewhere not very far off the £20bn,” he said.

“One of the reasons banks are not lending is because of the punitive rates of interest - way above the base rate - on government loans.”