Belfast Telegraph

Wednesday 1 October 2014

Cable bank 'needs £40bn state aid'

Vince Cable plans to launch a Government-backed bank to help increase lending to small businesses

Business Secretary Vince Cable's plan for a Government-backed bank to increase lending to small businesses will need £40 billion of state funding to make it a success, according to new research.

The bank must also be free to raise up to £100 billion on the capital markets to top up the taxpayer-funded investment, urged the IPPR think-tank.

It also called on the Government to allow the institution to plough money into infrastructure projects to help rejuvenate the economy.

Mr Cable announced plans last week for a government-backed bank to increase lending to small businesses. The Liberal Democrat admitted the details were still in "gestation" but "may" involve some state lending, something the Treasury is understood to be against.

Tony Dolphin, IPPR chief economist, said: "Because the Chancellor will not spend more government money boosting aggregate demand in the economy, he has been reduced to indirect schemes like funding for lending to support growth.

"These require shifts in behaviour by the banks and pension schemes if they are to work and consequently are not as effective as more direct approaches. There is a danger that Vince Cable's idea for a new bank will also have less impact on the economy than it could.

"What we need in the UK is a fully-fledged British investment bank designed to suit the particular circumstances of our economy.

"We urgently need infrastructure investment and financing for small and medium-sized businesses. A British investment bank could tackle these long-standing weaknesses in our economy.

"Such a bank would require an initial injection of government capital which - on the existing accounting rules - would make it even less likely that the Chancellor would meet his fiscal targets.

"A fully-fledged British investment bank should not be held back by the vagaries of the UK's accounting practices. Its self-financing activities should be excluded from the Government's target fiscal measures and it should be free to raise funds on capital markets."

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