Government set to boost business credit in Autumn Statement

4 October 2011

Chancellor George Osborne has revealed that the Treasury has been tasked with injecting money into small businesses.

Speaking at the Conservative Party Conference in Manchester this week, the Chancellor said that a form of monetary activism known as credit easing would soon be underway.

The scheme, which would be similar to the National Loan Guarantee Scheme the Conservatives wanted to introduce when in opposition, would help ease lending to small businesses. Full details of the initiative are expected in the Autumn Statement, but the Chancellor emphasised its importance, saying:

"It could help prevent another credit crunch; provide a real boost to British business; and over time help solve the age old problem in Britain: not enough long term investment in small business and enterprise."

Business editor at the BBC, Robert Peston says that the announcement could be of great significance, claiming that it demonstrates:

"That the Treasury is seriously worried that deterioration in the eurozone's financial crisis could lead to a full scale credit crunch, since phase one of credit easing would be designed to keep the supply of loans flowing to businesses in those appalling circumstances."

Peston also believes that it signals concerns that Project Merlin - designed to get bank's lending to small businesses is failing. "It's proof the Treasury has given up hope that - in the absence of structural reform of the credit market - small businesses will find it any cheaper or easier to borrow, even in the longer term."

Commenting on the announcement, and the impact credit easing could have, John Longworth, director general of the British Chambers of Commerce (BCC) said:

"Credit easing could help solve the problems in delivering much-needed credit to businesses, but the devil will be in the detail as to how this could work. These are all announcements that will give businesses confidence, who will be encouraged by Chancellor's focus on driving the recovery through a prosperous and enterprising private sector.

"While we welcome the Chancellor's proposals for stimulating business growth, it is important that they are delivered promptly. What business needs now is to see the words of the Chancellor implemented so they can feel the benefits of a growth agenda."

Other announcements made by the Chancellor included plans to reform unfair dismissal laws, which currently cost small businesses millions.