Small businesses need to be 'recognised' in bank rescue

8 October 2008

News that the government is to provide a £500 billion rescue package for the UK's banking system has been welcomed by the business community.

The re-structuring plan comes in three parts. £50 billion has been set aside to help the banks rebuild their capital reserves. Short-term loans totaling £200 billion are being made available in an effort to boost liquidity levels. Another £250 billion will be used as loan guarantees to encourage banks to begin lending to each other again.

John Cridland, CBI Deputy Director-General, said: "We welcome today's essential measures which strengthen the British banking system, and will help provide financial stability for the country.

"British business is facing a freezing of bank finance. Many companies need this action to keep investment and working capital flowing.

David Kern, economic adviser to the British Chambers of Commerce, commented: "We welcome the radical measures announced this morning by the Government. We hope the package will restore stability. But given the erratic mood in the financial markets, there remains a risk of renewed speculative attacks.

"In the current situation, the authorities must not be taken by surprise. If the need arises, they must have additional instruments at their disposal.

"The financial turmoil must not be allowed to damage the real economy. It is critically important to restore confidence. The vital flow of finance to businesses and consumers must be maintained at all costs. A cut in interest rates tomorrow, and a reduction in business taxes, remain vital steps."

However, the Federation of Small Businesses (FSB) urged that the needs of smaller firms be recognised in the package.

The FSB argued that, in making available £50 billion to the UK's top eight banks, the government should require reassurances from the same banks that they will extend loans to small business on a normal financial basis.

John Wright, the FSB's national chairman, said: "This is an ideal opportunity now that the government has a big stake in the banks to enter into a constructive dialogue with them about their commercial practices and their charges regarding small businesses.

"It is crucial in these tough times that small businesses have access to fair overdraft and loan rates. Today's announcement should be coupled with assurances that more money will be made available to small businesses to help sustain them and get them through the next year."