The government’s plan to provide banks with ‘Funding for Lending’ money has been trashed by shadow chancellor Ed Balls, who claims it will not in fact address the right problem. With many SMEs struggling to find the business finance that they so desperately need, this is not what many companies will want to hear.
Mr Balls has warned that the multi-million pound endeavour will not address economic confidence and lending demand. He has commented that if George Osbourne had wanted to use this plan, then he should have done so two years ago – and it won’t work anyway as businesses aren’t investing in growth.
Osbourne has warned that the ongoing troubles in the Eurozone has left the UK facing the most serious crisis for its economy since the Second World War. His and Sir Mervyn King’s proposal is to give banks cheap money which will be funnelled down to their business customers – hopefully giving banks the means to lend and making this more accessible to the banks’ business customers.
This could potentially give the business funding sector an £80bn cash injection and ease fears of stunted growth in 2012. The Bank of England will also be investing in a separate scheme which will pump £5bn a month into City institutions which will boost their liquidity, hopefully further alleviating fears of more economic crises.
However, Balls has commented; “Simply giving the banks billions of pounds doesn’t translate into loans to businesses. If business is not investing and creating jobs and if our economy is not growing, that’s the fundamental problem.”
While there’s sure to be a certain amount of political wrangling attached to this debate, there could be some truth to it. If the cheap money provided by the Bank of England doesn’t filter down to businesses, then it is more than likely that the bank lending arena will remain inhospitable for many a small business.