Government unveils £1bn 'business bank'

With banks failing to lend to keep the economy moving, the government takes matters into its own hands

The government is desperately trying to get the economy working again with the creation of a £1bn dedicated "business bank".

Business secretary Vince Cable was set to make the announcement at the Liberal Democrat conference, as the government aims to help SMBs that have struggled to obtain credit during the financial crisis, the BBC News website revealed.

The bank will operate through existing lenders and start within 18 months, with hopes that private sector investment will match.

In a statement, Cable said: "We need a new British business bank with a clean balance sheet and an ability to expand lending rapidly to the manufacturers, exporters and high-growth companies that power our economy.

"Today I can announce we will have one. I am working with the chancellor to develop a state-backed institution that will combine up to £1bn of new government capital with a larger private sector contribution.

"This will then apply further leverage through guarantees to support up to £10bn of finance to SMEs [small and medium-sized enterprises] and mid-sized business – a significant portion of all the lending available."

The statement added: "To that end, I believe we need an industrial strategy – a positive and ambitious vision, built around long-term investment and innovation, in skills and science."

Further details of where the funding will come from will not be made public until the autumn statement on 5 December, the Lib Dems claimed.

The news came in the same week that the government's £82.5m start-up loans scheme opened its doors to young entrepreneurs in England.

Aimed at 16 to 24-year olds, the scheme will lend up to £2,500 to anyone in that age range who is unemployed, in education or working, and who has a business idea that can be turned into a viable business plan.

Initially announced in Budget 2012 and launched in May, the pilot scheme currently has £10m worth of loans to young start-ups. Should the trial be successful, a further £32.5m will be made available in the next financial year 2013-2014, with another £40m in the tax year 2014-2015.

It is estimated that up to 30,000 youngsters will take up the scheme and launch their own business.