Government business loan plan threatens taxpayer with all the risks and no rewards again

12.00.00am GMT Sun 18th Jan 2009

Vince Cable MP

Commenting on reports that the Government is planning to guarantee up to £20bn of loans to small businesses, Liberal Democrat Shadow Chancellor, Vince Cable said: "The Government's proposal, essentially the same as that of the Tories, potentially involves very large taxpayer liabilities and is in effect a further subsidy to bank lending."

"We worry that this is another instance of the taxpayer shouldering all of the risks without any of the rewards. It is also a very expensive approach when others have not yet been explored.

"The simple and obvious issue which has to be raised is why the partially-nationalised banks are not being required by the Government to maintain the flows of lending.

"It is partly that there is a confusion in the objectives the Government is setting the banks - telling them to lend more but also hold more in reserve and rapidly repay Government loans.

"But more than that, the Government seems to lack the bottle to break the banks' lending strike. It finds it much easier to use taxpayer-financed guarantees than to get tough on the taxpayers' behalf.

"In our view, the partially-nationalised banks like RBS should be brought fully under Government control in order to perform the function of lending to sound British businesses. That is more likely to achieve the required objective than vast, potentially open-ended guarantees."