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£80 billion bank lending scheme is launched


A new scheme aimed at boosting lending to homebuyers and small businesses has come into effect.


Under the Funding for Lending scheme, banks and building societies will be offered below market rate loans for a period of up to four years, on the condition that they use the money to increase lending through mortgages and loans to small firms.


Banks will swap collateral, such as existing loans, for cash-like ‘Treasury bills’, on which they will be charged interest of as little as 0.25%.


Following its launch, the Chancellor revealed that the initiative will, in time, ‘effectively take over from the National Loan Guarantee Scheme, delivering credit easing to the whole economy’.


With Britain facing its longest double-dip recession in more than 50 years, the Government’s latest move to boost the economy was largely welcomed by business groups.


John Longworth, director general of the British Chambers of Commerce, said Funding for Lending was ‘a welcome step forward’ and ‘a more imaginative approach to providing cheaper lending to businesses.’


Meanwhile John Walker, national chairman of the Federation of Small Businesses, commented; ‘the scheme is designed to help to make finance more affordable as well as easier to obtain. So it is vital the banks which take advantage of the scheme pass on these benefits to the small businesses it is intended for. Over the last quarter, four in 10 small firms were refused credit.’


However Jonathan Portes, director of the National Institute of Economic and Social Research, claimed the new scheme was ‘just an interest rate subsidy to the banks’ and ‘won’t necessarily increase the volume of lending’.