Small firms ‘need £1bn lifeline’

BUSINESS chiefs today begged Chancellor Alistair Darling for a £1billion lifeline to stop hundreds of thousands of small firms going bust.

They appealed to the Government to set up a survival fund to help the UK's 4.7million small businesses get through the looming recession. Many are struggling as trade has dried up and banks have raised the cost of borrowing or demanded that loans be paid back.

"Today, one in three small businesses is unable to obtain finance and has seen the cost of existing finance increase dramatically," said John Wright, national chairman of the Federation of Small Businesses.

"A similar number of businesses say that they are seriously considering closing should the current credit climate continue. With more than 13million people working within small firms, these figures represent a serious threat to our economy." The FSB pointed out that the Government had provided £500billion to bail out the banks. Ministers were urged to inject 0.2 per cent of this sum, £1 billion, into a small business survival fund. "This will help both established businesses and start-up firms, which urgently need working capital now," Mr Wright added.

As part of their rescue deal, banks made a commitment to return to 2007 levels of lending to businesses - but have been accused of failing to meet this pledge.

Liberal Democrat leader Nick Clegg today told Radio 4's Today programme: "If they [the Government] are not prepared to get tough with the banks then we do need a plan B. We need to get money into the real economy."

The Treasury could take banks' bad debts off their books to kick start more lending, he suggested, adding: "Or we could try lending directly into the economy." Local authorities could offer more mortgages and public funds could be used to underwrite a new bank.