Mandelson launches rescue effort for small business

A multi-billion package of financial support for business has been announced by business Secretary Lord Mandelson.

It includes a £10bn working capital scheme securing up to £20bn of short-term bank lending for companies with a turnover of up to £500m plus a £75m enterprise fund for companies struggling to obtain finance. There is also an enterprise finance guarantee scheme securing up to £1.3bn in additional bank loans for firms with a turnover of up to £25m.

The measures come after mounting concern that small businesses were facing collapse at alarming rate since the beginning of the financial crisis because banks had become reluctant to lend.

The package was broadly welcomed by the Liberal Democrats but Tory shadow business secretary Alan Duncan said in the Commons that the measures amounted to 'a small bandage on a massive wound' and were 'a pale imitation' of proposals the Conservatives have put forward.

Mandelson said it was crucial to act now to help business and industry amid warnings that scores of firms are going out of business that are worthy of support.

He said: 'UK companies are the lifeblood of the economy and it is crucial that the government acts now to provide real help to support them through the downturn and see them emerge stronger on the other side.'

He said companies have been struggling to secure the funding they need, not because of any failure in their business, but due to the 'tough credit conditions'.

He said discussions are under way with trade credit insurers on a possible government scheme to help companies unable to secure insurance for normal business transactions.

Mandelson said the government will provide the banks with guarantees covering 50% of the risk on existing and new working capital portfolios worth up to £20m to ensure credit lines are not reduced or withdrawn, freeing up capital which the banks are to use for new lending that would otherwise not have been provided, as a condition of the scheme.

He said Chancellor Alistair Darling is in ongoing discussions on further unspecified measures designed to restore more normal longing conditions - understood to be a reference to possible state purchases of credit instruments enabling more mortgage and other loan operations to proceed following the collapse of the secondary market.

He said a relatively small amount of taxpayers' money would be at risk to secure a much bigger benefit but it was 'a very major programme to bring new working capital into existence'.

During Prime Minister's Questions in the Commons, Tory leader David Cameron repeatedly accused Gordon Brown of 'copying' Tory policies, but Brown insisted the Tories were 'out of touch with the rest of the world' and 'completely isolated' in demanding spending cuts.