Osborne: SMB loan fund to cut repayment interest rates

Chancellor unveils raft of plans to help SMBs and mid-market companies as his plan stands accused of "colossal failure"

Chancellor George Osborne claims the government's expanded business loan scheme could help SMBs reduce interest payments by one per cent.

As expected, Osborne today unveiled what is effectively an expansion of Labour's Enterprise Finance Guarantee Scheme. The government has initially set aside £20bn, a figure which could double, to underwrite bank loans to businesses with annual turnover of less than £49m. Funding will be allocated to banks based on how much they increase net or gross lending to firms.

The chancellor claimed the scheme could, typically, allow SMBs to reduce the interest on loan repayments by one per cent.

"We will use the hard-won low interest rates that the government can borrow at to help small businesses borrow [at a lower rate]," Osborne told the Commons today.

Also introduced today was a "£1bn business finance partnership" to be invested in UK mid-market firms.

Innovative firms in the tech and energy worlds will also be given R&D tax breaks. Start-ups will also be given a helping hand, with investors that plough in up to £100,000 benefiting from income tax relief of 50 per cent. Capital gains tax for these firms will also be waived next year.

UK GDP growth is set to stand at 0.9 per cent this year, down from the 2.5 per cent growth predicted earlier in the year. Growth for next year is pegged at just 0.7 per cent.

Osborne opened his speech on a cautionary note, stressing that it may be difficult to avoid a domino effect if the rest of the continent descends into economic disaster.

"If the rest of Europe heads into recession, it might prove hard to avoid one here in the UK," he said. "We are undertaking extensive contingency planning."

Shadow chancellor Ed Balls claimed the coalition's spending cuts programme had proved unsuccessful. He also took the time to remind Osborne that, in his comprehensive spending review a year ago, he claimed to have taken the UK out of the "danger zone".

"Plan A has failed, and it has failed colossally," said Balls. "Families, pensioners and businesses already know it is hurting, with billions more in borrowing to pay for rising unemployment.

"Cutting too far and fast has backfired."