Business bank will need £40bn to work, says think tank

Vince Cable There are few details as yet as to how Vince Cable's planned business bank will work

The government-backed "business bank" planned by Business Secretary Vince Cable will need £40bn to successfully boost lending to UK firms, says the think tank IPPR.

It says the bank must also be able to tap bond markets for up to £100bn.

The IPPR also suggests the government allow the bank to invest in infrastructure projects such as road building to help reflate the economy.

Mr Cable announced plans for the business bank last week.

He hopes such a bank will "shake up the market" and help boost overall lending to firms.

How the bank will be structured and funded is still being worked out.

Sketchy

Details on what form the business bank will take have yet to be revealed. Nor have any details been released about what firms it will aim to lend to, or the length in years of any loan agreements.

Start Quote

Banks lend primarily on assets. Clearly that has failed”

End Quote Federation of Small Businesses

Mr Cable, a Liberal Democrat member of the coalition government, has said the details are still in "gestation" but "may" involve some state lending, although the Treasury, with Conservative Chancellor George Osborne in charge, is understood to be against this.

The IPPR's chief economist, Tony Dolphin, said: "Because the chancellor will not spend more government money boosting aggregate demand in the economy, he has been reduced to indirect schemes like funding for lending to support growth.

"What we need in the UK is a fully-fledged British investment bank designed to suit the particular circumstances of our economy."

The think tank points out that the £40bn of government capital it believes is needed to kick start the project is unlikely to appeal to the chancellor as it would make it unlikely he would meet his fiscal targets designed to rein in government spending and cut the gap between income and spending.

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