Alistair Darling and treasury officials are considering draconian new legislation to force banks to loan money to small companies at competitive rates of interest.
Reports claim that Darling is looking at measures which could cap interest rates on loans to small firms, who have complained they are facing sharp increases in the cost of finance as a result of the global credit crunch.
The chancellor will deliver his Pre-Budget Report on Monday, in which the government is expected to introduce a new scheme to underwrite small business loans made by banks.
There has been mounting pressure on banks to pass on the surprise interest rate cut of 1.5% as announced by the Bank of England earlier this month.
John McFall, head of parliament’s influential treasury select committee, warned major banks must start lending to small businesses or face increased public pressure for the “nuclear option” of full-scale nationalisation.
“Despite being pulled back from the brink, the banks appear reluctant to launch their sizeable recapitalisation lifeboat and start lending again to households and businesses,” McFall said.
“It would seem that they are instead navel gazing and looking warily at each other instead of concentrating on their customers, many of whom are still in peril on a sea of uncertainty.”
© Crimson Business Ltd. 2008
