Exclusive: Credit Easing Scheme Sidelined
George Osborne's flagship initiative for boosting lending to small businesses is to be quietly sidelined in a move that risks backfiring on the Coalition as it tries to revive Britain's flagging economy.
I can exclusively reveal that the Treasury is preparing to wind down the National Loan Guarantee Scheme (NLGS) - or "credit easing" as it was widely dubbed - less than six months after its launch.
Treasury officials have told banks in recent days that the NLGS will be effectively abandoned because it is to be superseded by the "funding-for-lending" scheme that officially launches tomorrow and which could channel as much as £80bn of new lending to households and businesses.
"The scheme is not being formally axed, but it is reasonable to expect that banks will not deem it sensible to continue accessing it," a Whitehall official told me.
The Treasury's official explanation is likely to be that the NLGS has been rendered superfluous by the funding-for-lending initiative.
Yet critics are likely to point out that while SMEs automatically benefited from discounted loans under the NLGS, there is no obligation for banks to pass on the discount under the new programme.
"The Treasury clearly hasn't thought through the "broken promise" element of scrapping the NLGS," said one banker who has been briefed on the Treasury's plans.
The details of the credit easing programme were unveiled in the Chancellor's autumn statement last year.
Hailed as the centrepiece of his strategy for helping SMEs drive Britain's economic revival in his party conference speech, it was launched in March with the aim of providing up to £20bn of Government guarantees on unsecured borrowing by banks, with small and medium-sized businesses (SMEs) that borrowed under the scheme receiving a 1% discount compared to the rate they would receive from the same bank outside the NLGS.
On the day the NLGS launched, Mr Osborne said: "The Government promised to help small businesses get access to lower interest rates.
"Today, we deliver on that promise with a nationwide scheme.
"It's only because we've earned credibility with our deficit reduction plan that we have low interest rates, and it's only because of this scheme that we can pass the benefits of those low rates onto businesses."
The banks which had begun participating in the NLGS, which include Barclays, Lloyds Banking Group and Royal Bank of Scotland, have drawn down several billion pounds to date, and are expected to lend the remainder of the funding they have accessed.
However, some of the banks had complained that the NLGS was not working effectively because of its structure.
As I revealed last month, Santander UK had stopped issuing loans under the NLGS banner because of the difficulty of shifting the resulting Government paper.
The cost to banks of accessing unsecured lending has also been a deterrent to take-up of the NLGS, bankers say.
The funding-for-lending scheme is designed, bankers say, in a smarter way, in that it will reward banks that lend more under it.
Unveiled earlier this month in conjunction with the Bank of England, it would, Mr Osborne said, "aim to make mortgages and loans cheaper and more easily available, providing welcome support to businesses that want to expand and families aspiring to own their own home.
"The Treasury and the Bank of England are taking coordinated action to inject new confidence into our financial system and support the flow of credit to where it is needed in the real economy - showing that we are not powerless to act in the face of the eurozone debt storm."
Mr Osborne has also in recent weeks launched another guarantee scheme aimed at kickstarting major infrastructure projects.
The Treasury declined to comment on the future of the NLGS today although it is expected to make a statement tomorrow to coincide with the formal opening of funding-for-lending.
what do you think?
Now call me paranoid if you like, but could this be the government trying to bury bad news whilst the Olympic Games are on? I'd put nothing passed them.
surely the olympic games are bad enough news on their own...
Nice one Michael. I like that
so, you two are lovers then ?
U turn anyone?
what a complete shower this government is turning out to be. they dont have a clue about governing the country and its becoming more and more obvious as the days go by. they blunder on day by day digging themselves deeper and deeper into a bottomless pit. they need putting out of their misery sooner than later. a total laughing stock.
Michael they are digging US, not themselves into a bottomless pit - they are all stinkin rich with their money in off-shore accounts so the financial impact does not 'bite' them only us!
Michael do you ever have anything intelligent to post or is it just the one record you have
And the Gold Medal goes to the Coalition Government for the most UTURNS ever made while in Governement
Narr......that goes to Liebour who dumped all their policies & u turned & became New Liebour. Keep Alf old lad !
Granty, Granty, Granty another ranty, ranty. ranty Labour did not make many uturn your memory must be going going gone
Grant, how does it feel to be famous? Y'know, as the world's only surviving brain transplant donor?
Oh sorry Alf, forgot you only remember what suits you.
your right Grant. also consider the fact that any policies that the socialists didn't U turn on where mostly bad for the country anyway. complete load of useless jokers. It will take years to sort out the mess thay have left.
You just can not make this up, They far exceed any script the mupet show can produce. They are slowly being found out how bad this government is. I bet the Lib Dems must be worried as they are out in the wilderness with little hope of being a third force in politics having come forth in local elections. We need these muppets out and fast before anymore damage is done to this once great country of ours.
It was before the Labour jokers got at it!!!
Malcolm, precisely NOTHING of the mess we're seeing in the UK now is ANYTHING to do with the previous goverment - clueless revisionism based on Daily Mail ranting doesn't make it true. And Christopher, "SLOWLY being found out"? Some of us could see what was coming two years ago. There has NEVER been a more incompetent, idealogically blinkered government in the UK in my 50-odd years. It's sad that ignorance like that displayed by Malcolm still finds a place in anyone's head...
what a load Keith, you socialists can bury your heads as deep as you like the fact is that the country was ruined by labour with blairs lies and browns incompetence. Oh and I dont read the mail.
well said Malcolm. stay strong and dont let the socialist liars get you down. they make very good bullies. come to think of it, lies and bullying are the only things that they are good at.
It's being replaced by something else. All borrowing is bad, particularly in this economy.
While the scheme seems to be repaled by something else, why go through all the tme, expense and assle of a new scheme? This will e seen as a U-turn and an inability to produce policies that enure the test of time and, most important actually work!
And what's particularly galling is that they're replacing a clearly flawed, failed scheme WITH THE SAME THING, just rebranded. Einstein's definition of insanity seems particularly applicable here...
Granty, Granty, Granty another ranty, ranty. ranty Labour did not make many uturn your memory must be going going gone.
bibby,bibby,bibby more fibby,fibby,fibby how about the admission that they got immigration wrong. thats just the latest in a long line of admissions.(U turns, if you like). The big one we are still waiting for is balls to admit they got the economy wrong. He dosn't have the guts which is what it takes to admit a mistake and change tack. Not just in politics but in all matters.
I wish Spitting Images was still on TV - they would have a field day with this lot
I spent the 13 years of socialist hell wishing the very same thing. Imagine blairs puppet (small) and browns puppet (huge).
Has Osborne ever run a successful business? Has Cameron for that matter? Are they Just a bunch of toffs playing monopoly? Spiffing good fun when its not real money. What does this country produce that other countries need? What does this country have that the rest want? Positive answers please before I lose the will to live!
Titch. Not a lot from what I understand. The country that used to be the manufacturing hub of ther world now exports financial services. Once Frankfurt getr their act together that will go down the pan too.
we produce a lot of technology. I work in manufacturing industry for a small company. we sub a lot of hi-tech work that is exported. please stop with the classism. We all have to accept that putting right the huge mistakes of the socialists will mean a lot of trial and error. no one has all the answers.
I've calculated that George Osbourne has made so many U-Turns that we are probably back on his "very" original course! So, many wrongs could make a right.....or was that left?
I do apologise I don't quite understand.. Osbourne is changing it because it's not working or not working the way the banks would like? It can't be the prior because in the same breathe they say businesses have been able to access £7billion in the past 6 months..
Sorry should be £20billion, on that note why don't they just take that money and build a national and with it? Cut out the big banks that arnt supporting our businesses altogether
Scott, the reason it's not working the way banks would like, is because their customers pay less interest instead of more! How can the banks CEO's claim their massive (and ill-gotten) bonuses with people paying less interest! More importantly Mr Cameron, Mr Osbourne, how do you expect people to reduce their debt by borrowing more!
these clowns have completely overlooked what the root problem is PEOPLE DO NOT HAVE MONEY to spend on anything ,because the cost of petrol is miles to high ,the cost of gas bills ,electric bills is eating up their finances ,can they not see this is what needs to be dealt with not loans to small business they have not got any customers !!!
Another flagship policy ditched. How I wish this shower could get their act together for the benefit of us all. At present they aren't staggering from crisis to crisis they are on their knees shuffling to them
What low interest rates? The only low interest rate is that being paid to savers at 0.5% soon to become 0.25% if the rumours are true! Also can anyone explain how banks believe anything over 7% interest (inter-bank lending rate) makes debt un-repayable; yet they charge their customers 19% and upwards demanding FULL repayment whilst hitting their customers with penalty charges!
I agree with previous replys,on the avalaibility of spending money,until we all have money to spare after essential spending the situation in high street shops is not going to improve,and that is a shame,as it means more closures and more jobs lost.
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