George Osborne unveils multibillion credit-easing plan

Treasury will buy companies’ corporate bonds, providing cash direct to struggling firms unable to gain funds from banks A scheme to avert a second credit crunch through a multibillion pound credit-easing programme for small firms, funded by the Treasury, has been unveiled by the chancellor, George Osborne. The credit will be provided by the Treasury through an arm’s-length operation direct to companies, with the Bank of England acting as the Treasury’s agent. Under the scheme, the Treasury will buy small firms’ corporate bonds, providing cash direct to struggling firms unable to gain funds from the banks. The initiative is separate from the quantitative easing by the Bank of England which is, in effect, the printing of money. Ministers also see the credit easing as a medium-term way of developing a US-style credit market for small and medium sized firms that does not depend on banks. The proposal – an admission that the banks are still not lending properly – was presented as a sign that the Treasury is responding to events in a way that does not involve abandoning deficit reduction. Osborne has also announced that anyone applying to make a claim at an employment tribunal will have to pay a fee of between £100 and £150. A full-scale hearing will cost £1,000, and any claim for more than £30,000 in compensation will cost more. The money will be recoverable if the claim is won, but Treasury officials believe the costs will deter vexatious claims. The chancellor also confirmed that Britain will abandon its leadership role in climate change when he said it would not go further than other EU countries in its commitment to cut its carbon emissions. “We’re not going to save the planet by putting our country out of business,” he said. Osborne’s overall tone was to provide reassurance and some optimism for the future, insisting that “together we will ride out the storm”. He told delegates at the Conservative conference in Manchester: “I don’t want anyone to underestimate the gravity of the situation facing the world economy. But I also don’t want anyone to think that the situation is hopeless, that there is nothing we can do. “Our economic problems were not visited on this country by some cruel act of God or blind force of nature. They were created by the mistakes of human beings, and the endeavour of human beings can put them right.” Treasury officials also hailed the way in which Standard and Poor’s credit ratings agency had confirmed Britain’s AAA credit rating in the middle of the speech, insisting they had no influence over the content or timing of the announcement. Osborne also rebuffed those in the cabinet who have been proposing a £5bn to £10bn fiscal stimulus, pointing out that that kind of stimulus would be dwarfed if it led to higher interest rates. Labour claimed the resort to credit easing was a sign that Project Merlin was not working and said that deal with the banks had been designed to ease the flow of credit to small firms. Osborne admitted in his speech: “Because the banks are damaged, they won’t lend at the current low rates. It’s like putting your foot on the accelerator but, because the transmission mechanism is not working properly, the car wheels won’t respond.” The Treasury officials said the credit rating plan stemmed from an approach to the economy first laid out by Osborne in a 2007 speech, and was similar to the national loan guarantee scheme he had proposed in the UK. The Treasury credit would not add to the deficit because the Treasury is buying assets, and therefore does not represent spending money that will not be recovered. Osborne made a bold pitch for the aspirational centre, using the booing of Tony Blair’s name at the Labour conference as a sign Labour was no longer in touch with the centre ground. Conservative conference 2011 George Osborne Credit crunch Market turmoil Financial crisis Ratings agencies Financial sector Banks and building societies Banking Economic policy Small business Conservative conference Conservatives Economics Patrick Wintour guardian.co.uk

Posted by on October 3, 2011. Filed under News, Politics, World News. You can follow any responses to this entry through the RSS 2.0. You can skip to the end and leave a response. Pinging is currently not allowed.