'Credit easing': Treasury announces new plan for lending

Lock down: Ministers have become increasingly exasperated by the failure of banks to lend to small-and-medium sized businesses.
Lock down: Ministers have become increasingly exasperated by the failure of banks to lend to small-and-medium sized businesses.

By Ian Dunt

The Treasury plans to lend money to small-and-medium sized businesses, after three years of failure in the banking sector.

A vague mention of 'credit easing' during George Osborne's conference speech today was followed by further details from the Treasury, which said it will lend to small businesses by buying corporate bonds.

"To get the economy moving, I have set the Treasury to work on ways to inject money directly into the parts of the economy that need it, such as small businesses. It's known as credit easing," the chancellor said during his speech.


While the plan could see the government lend tens of billions of pounds, the Treasury insisted it was not a 'Plan B' because any money borrowed will be secured against assets.

Critics said Mr Osborne had branded the idea "the last resort of a desperate government" when it was floated by Alistair Darling in February 2009.

That plan was also opposed by Bank of England governor Mervyn King, eventually leading the government of the time to back down.

Mr Osborne's version would see the Treasury – not the Bank of England – assume the credit risk, negating Mr King's objection.

The Bank of England might still act as an agent for the Treasury, however. Such a move would prevent ministers making the decisions about which businesses receive the lending.

Credit rating agencies will assess which companies are credit worthy before payments are made.
 

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