Osborne plans billions in 'credit easing' loans

Chancellor George Osborne will unveil a new government scheme to underwrite up to £20bn of loans to small businesses when he delivers his autumn statement on the economy on Tuesday. The "credit easing" scheme is intended to prevent the British economy falling back into recession. The plan would see the government underwrite banks' borrowing, allowing them to borrow more cheaply. This saving should then be passed on to the firms through lower interest rates. The credit easing scheme will see the government providing a guarantee for banks to borrow on the financial markets, with those institutions then obliged to pass on the cheap lending rates to small and medium-sized companies. A Treasury source described the scheme, which is thought to be similar to the Labour government's credit guarantee scheme of 2008, as a "game changer". It would mean that a firm currently taking out a £5m loan at a typical interest rate of 5% would instead be able to borrow at 4%, saving £50,000 a year in interest payments. Ministers hope the scheme will be in operation by the start of the new year, and it is envisaged it will run for the next two years. 'Not enough' A second smaller scheme will see the establishment of an investment fund with private sector investors, such as pensions funds, to provide a source of loans for larger firms which is not bank-related. In a joint letter to Mr Osborne, shadow chancellor Ed Balls and shadow business secretary Chuka Umunna warned that the credit easing alone would not be enough to revive economic growth. "At the current rate, over 1,200 people a day are entering unemployment," said the letter. "Businesses are going bankrupt at a faster rate than a year ago - despite your expressed wish for a private sector-led recovery. Access to credit will not in itself restore the confidence of business to invest. The country urgently needs a plan for growth and jobs." 'Positive move' Mr Osborne is also due to announce a cap on rises for regulated rail fares, such as peak fares and season tickets. A planned rise of 8.2% - RPI inflation of 5.2% +3% - will be restricted to 6.2% (RPI +1%), with the cap also covering bus and tube fares in London. The Association of Train Operating Companies described the plan as a "positive move" for passengers. "Train companies are ready to work hard to ensure that a government decision on fares is able to be implemented in time for the New Year," said a spokesman. The Treasury said its credit easing plan will not add to the country's deficit, according to BBC political correspondent Carole Walker. Our correspondent said: "They are sticking to that deficit reduction plan, but I think the chancellor does still face a lot of questions about how he is going to pay for things like those lower than expected rail fares and that plan to tackle youth unemployment that we heard about." Are you a small business? What do you think of the scheme? Will it help you? Send us your comments and experiences using the form below.