Lib Dem Conference: New Business Bank Plan

A new "business bank" is being set up to boost lending to small and medium-sized firms, Business Secretary Vince Cable has announced.

The plan, billed by the Lib Dems as a "big win" for Mr Cable, will see £1bn of taxpayers' money chanelled into the new initiative.

The Treasury has given its backing to the move in which a new arms-length institution will aim to open up £10bn of finance.

The state cash, which it is hoped will be matched or exceeded by private money, will come from existing budgets and will not require extra borrowing.

But details about where the money will come from and precise details about the bank will not be made public until the Autumn Statement on December 5.

Mr Cable hailed the plans in his speech to the Liberal Democrat party conference in Brighton later.

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. Today I can announce we will have one.

"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."

Chancellor George Osborne has previously said the new bank would bring together the "alphabet soup" of existing initiatives to boost lending but also have extra powers.

Officials believe it could be in operation within 12-18 months, although details of its operation have yet to be determined and no pledges of private support have yet been sought.

The state cash will come from equity as well as guarantees and will go onto the new bank's balance sheet. They will not be reclaimed by the Treasury.

Run professionally and at arms-length from Whitehall, it will not lend directly but act as a wholesale institution funding via small new banks and "non-bank" bodies.

Aides say it has been deliberately designed not to appeal to the high street banking giants in the hope it will promote competition in the sector.

The move was welcomed by the British Chambers of Commerce, which said six in 10 firms say they would feel more confident if the UK had a state-backed business bank.

Director general John Longworth said: "The Government has taken a decisive step toward the creation of a British business bank by committing real money to get it off the ground.

"We are pleased that ministers are heeding our call to create a business bank that goes well beyond a re-badging of existing schemes."