Lib Dem conference: Cable promises £1bn 'business bank'

Vince Cable: "We need a new British Business Bank with a clean balance sheet and an ability to expand lending rapidly to the manufacturers"

The government is to put £1bn into setting up a bank designed to increase the amount of lending to businesses, Vince Cable has announced.

The business secretary told the Liberal Democrat conference this will help many small and medium-sized companies who have struggled for credit since the financial crisis.

He promised to fight short-termism and "get behind" good firms.

The bank will operate via existing lenders, and start within 18 months.

It is hoped the money will be matched by private sector investment.

The details of where the state funding will come from and the bank's operation will not be made public until the autumn statement on 5 December, Lib Dem officials said.

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Vince Cable's speech to the Lib Dem Conference appeared to back George Osborne's Plan A whilst echoing the warnings of Ed Balls that it is time for a Plan B. ”

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Government support will be in the form of both guarantees and equity, and will go on to the balance sheet of the new institution and not be reclaimed by the Treasury. There is a chance it could generate returns, however.

'Ambitious'

The Lib Dems have been keen to promote their business credentials at their annual conference in Brighton, with proposals for boosting housing and the "green economy" also being revealed.

On Sunday, delegates voted to maintain opposition to a third runway at Heathrow Airport, a policy which puts them at odds with an increasing number of Conservatives and many firms.

But in his speech, Mr Cable promised a more coherent strategy to help get the UK out of recession.

He said: "We need a new British Business Bank with a clean balance sheet and an ability to expand lending rapidly to the manufacturers, exporters and high-growth companies that power our economy.

Analysis

While the details of the new "business bank" won't be known until December's Autumn Statement, it is believed that it will focus on supporting long-term lending to small firms.

It is expected to do this by buying up existing loans that banks have made to such companies.

While small businesses would get longer term financial security, the government will hope that its move will free up more capital for the sector.

Critics however will argue that the business bank plan will only add to confusion about what schemes are available to small firms, and accusations that the government keeps chopping and changing.

This is because Mr Cable's confirmation of the business bank plan comes less than two months after the government announced the launch of a separate initiative called Funding for Lending.

The Funding for Lending scheme is to replace the National Loan Guarantee Scheme, which was only first unveiled in March.

Prior to that there was an initiative called Enterprise Finance Guarantee Scheme.

So if some small firms are confused, others continue to argue that bank loans remain difficult to secure, because the banks are demanding large deposits.

On the other hand, the banks say that they are meeting their lending targets, and that they would lend more if there was an increase in demand for loans from small firms.

"Today I can announce we will have one. I am working with the chancellor to develop a state-backed institution that will combine up to a billion pounds of new government capital with a larger private sector contribution.

"This will then apply further leverage through guarantees to support up to £10bn of finance to SMEs [small and medium enterprises] and mid-sized business - a significant portion of all the lending available."

He added: "To that end, I believe we need an industrial strategy - a positive and ambitious vision, built around long-term investment and innovation, in skills and science.

"We are so good at so many things in this country - but for too long the mirage of growth based on property speculation and financial gambling has hidden the harder virtues of making things productively.

"We must get behind successful British-based firms in vehicles, aerospace, life sciences and creative industries and our world-class scientists and universities."

Mr Cable argued that markets "fail" and governments "can sensibly intervene and support enterprise".

He called for a "will to fight the British curse of short-termism - both in the corporate world and government".

BBC business editor Robert Peston said the government was aiming for a long-term improvement in lending to small firms rather than a quick change.

He added: "The intention is that these would be longer-term loans with a maturity of about 10 years, that small businesses find hard to prise out of our risk-averse banks."

John Longworth, director general of the British Chambers of Commerce, said the government had "taken a decisive step toward the creation of a British Business Bank by committing real money to get it off the ground".

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This is an attempt at serious structural financial reform to provide longer term, stable loans to smaller businesses, not a quick fix”

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CBI director-general John Cridland urged the government to get the bank running "swiftly", adding that it could "play a vital role in packaging up and selling debt from medium-sized companies, allowing them to access vital finance streams".

TUC general secretary Brendan Barber said: "The new state investment bank should provide much needed support for businesses to grow and create jobs. It's a shame that so many businesses have gone to the wall in the two years it's taken the government to agree to the scheme...

"If this bank is as good as ministers claim it will be, they should give it the backing it deserves and vastly increase its funds."

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