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Darling pledges business support Darling pledges business support
(about 5 hours later)
Alistair Darling has said it is vital to provide funds to small businesses as he prepares to unveil a £4bn package of support for British firms. Alistair Darling has said it is vital to support small businesses through the downturn after announcing extra financial assistance of up to £4bn.
The chancellor says the funding from the European Investment Bank will be made available to small and medium sized firms through High Street banks.The chancellor says the funding from the European Investment Bank will be made available to small and medium sized firms through High Street banks.
Mr Darling said he was "concerned" about instances where healthy businesses were being refused funding. It was in the interest of banks to support business customers in difficult as well as good times, he added.
But the Conservatives said Labour was increasing taxes for small business. But employers expressed concerns about the number of banks likely to sign up.
'Difficult period' The Conservatives said Labour was increasing taxes for small business and argued that what small firms really wanted was a "sustained reduction" in interest rates.
In the House of Commons, shadow chancellor George Osborne called on the government to abandon a phased increase in the rate of corporation tax paid by small business, announced in March 2007. The Lib Dems called for a code of conduct governing the terms on which a bank could cease providing credit to a business.
He accepted that banks did have to act responsibly regarding business lending but said what small firms really wanted was a "sustained reduction" in interest rates.
Traditional lending by the banks has dried up due to the credit crisis.Traditional lending by the banks has dried up due to the credit crisis.
There are fears that thousands of firms could go out of business in the coming months as the economic downturn worsens and banks, hit by the credit crisis, continue to be reluctant to lend money.
The government has made its multi-billion pound bailout of three of the UK's largest banks conditional of them restoring the availability of funds available to small businesses to 2007 levels.
FROM THE TODAY PROGRAMME More from Today programmeFROM THE TODAY PROGRAMME More from Today programme
However, there has been little sign of this happening yet and the government has said that the European money - which will be lent to banks so that they can pass it onto their customers - will be vital to supporting many businesses. There are fears that thousands of firms could go out of business in the coming months as the economic downturn worsens.
The chancellor and Business Secretary Peter Mandelson will meet with bank bosses later on Thursday to discuss the initiative. The government has made its multi-billion pound bailout of three of the UK's largest banks conditional of them restoring the availability of funds available to small businesses to 2007 levels.
Mr Darling said some £4bn in additional funds would be available to the UK from the EIB - the lending arm of the European Union - for the next three to four years. However, there has been little sign of this happening yet and the government has said the European money - which will be lent to banks participating in the initiative and passed onto their customers - will provide vital extra support for many businesses.
"It is very important that as we enter what is going to be a difficult economic period that small businesses can get access to funds," Mr Darling said. 'Lifeblood'
He said he was worried that, in some cases, viable businesses were not able to get funding and promised to step in if banks were found to be "unreasonably withholding" money. At a meeting with the head of the European Investment Bank - the lending arm of the European Union - Mr Darling said up to £4bn in additional funds could be available over the next four years.
We need to be assured that this money will actually filter down to small businesses John Wright, Federation of Small Businesses class="" href="/1/hi/business/7698614.stm">Chancellor backs bank rate policy Small firms were the "lifeblood" of UK business and access to regular and predictable funding was "crucial to their survival", he argued.
While admitting that not every business would be able to receive funds, he said it was essential the "pool of money" available to firms returned to levels seen before the credit crunch. "Our economy needs these strong small businesses and strengthening them will need our help," he said.
"If you have got a good business in front of you and if your prospects are good, the pool of money available is the same as it was in 2007. Banks have already applied for £1bn of funding, Mr Darling explained, and he urged more lenders to "seize the opportunity" to get involved with the EIB's scheme.
"What I can't guarantee is that anyone who walks in the front door of the bank will get what they want. It would be daft to claim that. What you can say is the pool of money will be the same." It is intended firms will be able to use the money for a range of purposes, from providing basic working capital to funding specific areas such as research or distribution.
Employers groups welcomed the funding measure but said it was essential that small businesses, no matter who they banked with, were able to get hold of the money should they need it. We need to be assured that this money will actually filter down to small businesses John Wright, Federation of Small Businesses class="" href="/1/hi/business/7700565.stm">Q&A: Help for small firms class="" href="/1/hi/business/7698614.stm">Chancellor backs bank rate policy
"We need to be assured that this money will actually filter down to small businesses," said John Wright, chairman of the Federation of Small Businesses. Business Secretary Lord Mandelson, who also attended the meeting, said there was "real anxiety" about access to bank funding and said assisting small business was "top of our agenda".
Speaking later, Gordon Brown said he was "delighted" the extra funding would be available and he urged banks "not to change the terms of and charges for existing lending to small businesses".
Mr Darling acknowledged that not every business would be able to receive funds and that the final decision about the sums offered would be taken by the banks themselves.
However, he said strong businesses would benefit and the scheme would help to return the amount of bank finance for business to levels before the onset of the credit crunch.
Employers groups welcomed the scheme but said it was essential that small businesses, no matter who they banked with, could gain.
Many companies report that their credit lines are being cut arbitrarily. This is simply not on Vince Cable, Lib Dem Treasury spokesman
John Wright, chairman of the Federation of Small Businesses, said of the major High Street banks, only Barclays was currently signed up to offer loans through the EIB.
"We need to be assured that this money will actually filter down to small businesses," he said.
"The government and the EIB must do much more to promote this availability of funds.""The government and the EIB must do much more to promote this availability of funds."
Lib Dem treasury spokesman Vince Cable said the government must take a much tougher line on banks to ensure lending was sustained.
"The government should not simply sit in the background hoping vaguely that the banks will comply," he told the BBC.
He called for a code of conduct for bank lending which would require businesses to be given at least 28 days notice if their funding is to be cut and the reason why.
"Many companies report that their credit lines are being cut arbitrarily. This is simply not on."
'Financial mess''Financial mess'
Mr Darling also defended the government's new approach to fiscal policy, outlined in a speech on Wednesday. Mr Darling has also defended the government's new approach to fiscal policy, outlined in a speech on Wednesday.
The chancellor paved the way for the government to relax its fiscal rules on borrowing and debt levels by stating it would be "perverse" to apply them rigidly at the moment and it was "sensible" to raise borrowing to maintain investment in crucial areas. He paved the way for the government to relax its rules on borrowing and debt by stating it would be "perverse" to apply them rigidly during a recession and it was "sensible" to raise borrowing now.
Once again it will have to be the Conservatives that have to clear up the mess Shadow chancellor George Osborne
"History tells us when the economy slows down if the government stops spending money we make a difficult position worse," he said."History tells us when the economy slows down if the government stops spending money we make a difficult position worse," he said.
He added that "only the government was big enough the support the economy" as the downturn forced private firms to cut back activity.
The opposition has warned ministers against a "spending splurge", saying it will cause further damage to the public finances.The opposition has warned ministers against a "spending splurge", saying it will cause further damage to the public finances.
Mr Osborne challenged the chancellor to come up with a "clear plan to get the public finances back under control".Mr Osborne challenged the chancellor to come up with a "clear plan to get the public finances back under control".
In the Commons, he argued that the government was set to leave the largest budget deficit of any Labour administration in history.In the Commons, he argued that the government was set to leave the largest budget deficit of any Labour administration in history.
"Once again it will have to be the Conservatives that have to clear up the mess," he said.
Are you a small business owner? Have you had problems with funding? Send your comments to the BBC using the form below:Are you a small business owner? Have you had problems with funding? Send your comments to the BBC using the form below:
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