Business secretary Peter Mandelson has voiced his support for a state-run investment bank to provide finance to small businesses, it has been reported.

According to The Telegraph, Lord Mandelson told senior colleagues he backs plans for a government-run investment bank, which would use both private capital and public money to invest in small firms and large UK projects.

It would be modelled on KfW Bank in Germany, which provides finance for banks to lend to small companies and large-scale infrastructure projects.

The business secretary has reportedly met with senior KfW executives twice in the last few months, to discuss whether the model could work in the UK, with a view to making an announcement in the Budget.

Mandelson said a state-run back could create funding streams in areas that the finance sector might otherwise ignore, sources in Whitehall told the paper.

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