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Banks 'must lend to small firms' Clegg proposes 'government bank'
(about 6 hours later)
The government must take more radical steps to encourage banks to lend to small and medium-sized businesses, according to the Liberal Democrats. The government should consider lending directly to businesses and mortgages as banks fail to live up to promises to lend more, Nick Clegg has suggested.
Leader Nick Clegg says there is a danger that solvent businesses could be deprived of investment and put at risk. The Lib Dem leader says the government has been "supine" and "weak" in not forcing banks to act, despite giving them billions of taxpayers' pounds.
He says the government should lend directly to companies through the Post Office, local authorities or even by creating an entirely new bank. Mr Clegg said these were "not normal times" and solvent businesses were being put at risk by lack of funding.
The chancellor has said that £4bn will be available to help small firms. There was "growing public anger" and urgent action was needed, he added.
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 Clegg says the government should lend directly to companies through the Post Office, local authorities or even by creating an entirely new bank.
The government has made its multi-billion pound bailout of three of the UK's largest banks conditional of them restoring the level of funds available to small businesses to 2007 levels.
But the Lib Dems say that despite this, lending rates are still low.But the Lib Dems say that despite this, lending rates are still low.
'Bad bank''Bad bank'
Mr Clegg told BBC Radio 4's Today: "There is growing anger that the banks aren't lending money. The government should put pressure on the banks and encourage them to lend. If they're not prepared to get tough with the banks we need a plan B.
"You could lend directly into the economy - it is a huge step, but if the government isn't prepared to lift a finger we need to do something and do something fast. We have to look at ways to get money back into the real economy."
Mr Clegg says a new bank could be set up to channel money to firms, but he admitted that would take some time.Mr Clegg says a new bank could be set up to channel money to firms, but he admitted that would take some time.
He also wants the recently nationalised banks such as Northern Rock to do more, but only once all high-risk loans are cleared from their balance sheets. Instead the government could look at "bashing" the effectively state-run Northern Rock and Bradford & Bingley Banks together, clearing high risk loans from their balance sheets and getting them to lend more.
These "toxic" debts could, Mr Clegg says, be placed in a so-called "bad bank", which could eventually be sold on by the government when market conditions improve. He also said that some of the larger councils should be able to lend directly to the mortgage market.
In October, Chancellor Alastair Darling announced that £4bn from the European Investment Bank would be made available to small and medium-sized firms through high street banks. There was also the possibility of setting up a special "bad bank" to take on the "toxic debts" of nationalised banks such as Northern Rock - which could eventually be sold on by the government when market conditions improve.
"What we are saying is that there are a number of other ways that we need to explore of getting money back into the economy if the banks are refusing to do so," he told BBC Radio 4's Today programme.
"This is a complete departure from the kind of banking practices you would want to see in normal times, but these are not normal times."
The Conservatives have also come up with strategies to help companies, including calling for a 1p cut in national insurance.The Conservatives have also come up with strategies to help companies, including calling for a 1p cut in national insurance.