The Government is to underwrite billions of pounds of bank lending to business in an attempt to get credit flowing to Britain's cash-strapped small firms.
Chancellor George Osborne will set out details of his much-heralded "credit easing" scheme - described as a "game changer" by Treasury sources - when he delivers his autumn statement on the economy on Tuesday.
Under Mr Osborne's plan the Government will underwrite the banks' borrowing on the commercial money markets, enabling them to borrow more cheaply.
The banks will then pass on the savings to the firms they lend to in the form of lower interest rates.
The scheme - said to be similar to the former Labour government's credit guarantee scheme launched in the wake of the 2008 credit crunch - is aimed at helping small and medium enterprises (SMEs).
For a firm currently taking out a £5 million loan at a typical interest rate of 5%, it would mean they would instead be able to borrow at 4%, saving £50,000 a year in interest payments.
Ministers hope to get the scheme up and running by the beginning of next year, with the intention that it will run for the next two years.
Because the loans are not being made directly by the Government they will not appear on the national balance sheet and taxpayer will only become liable if the banks fail to pay their debts.
A Treasury source said: "We all know that the cost of finance for smaller businesses has risen following the financial crisis. It's a problem people have been trying to solve since 2008, which is why these new schemes are much more radical than anything that has gone before. They should be a game changer for credit for small companies by cutting the cost of finance and over time opening up new options for how it is raised."
In a further move, Mr Osborne will announce that regulated rail fares - such as peak fares and season tickets - will rise by 6.2% next year (RPI inflation of 5.2% +1%) rather than the planned 8.2% (RPI +1%) increase.
Courtesy of London Evening Standard
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