Thumbs up for Osborne’s £40bn company loan scheme

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Business groups have welcomed the news that chancellor George Osborne is ready to underwrite up to £40bn in lending to cashstrapped firms.

Osborne said he would use every tool at his disposal to get the economy going again, without jeopardising the UK’s credit rating, in advance of his Autumn Statement this week.

The chancellor initially said £20bn would be made available to business through a new National Loan Guarantee Scheme “but this sits within an envelope which could be as large as £40bn”.

“The government will underwrite the loans banks make to small businesses in order to cut the interest rates which small businesses pay,” he told BBC1’s The Andrew Marr Show. “That will help with their cash flow, that will help them retain their workforces, that will help them expand and invest.

“I think this is actually relatively low risk for the government, given the strength of our balance sheet and our low interest rates and the credibility we have got in the world,” he said.

CBI director general John Cridland said the scheme had the potential to make a real impact on business growth. “With the ability to be rolled-out immediately and offer small and medium-sized firms more and cheaper loans, this scheme will be warmly welcomed by UK business,” he said.

John Longworth, the director general of the British Chambers of Commerce, said it would be a “big shot in the arm” for the economy but added it was only a “first step” in ensuring firms had access to the credit they needed.

Meanwhile, a major £30bn building programme to help breathe life into Britain’s struggling economy was expected be announced by Osborne – but the cost of constructing the new schools, roads and power stations will be partly met by further spending cuts.

Determined not to add to the deficit, the chancellor will have to make extra spending cuts to help raise £5bn of the proposed infrastructure investment. Other plans will be announced to build roads, bridges, public transport and telecommunications links and power stations, as well as to roll out broadband across the country.

Coinciding with Osborne’s statement, the independent Office for Budget Responsibility will cut its prediction for Britain’s economic growth in 2011 to around 1%, down from the 1.7% it forecast in March and 2.6% in June 2010.