Autumn Statement: Osborne banks on business

Chancellor George Osborne discusses the allocation of money from Libor fines to the armed forces yesterday. Picture: PA

The move comes amid fears that the rapid economic growth in the UK over the past 12 months could come to a halt with a new crisis in the eurozone and warnings that the UK government is failing to tackle the deficit as quickly as it hoped.

In a bid to help create new businesses the Chancellor will announce £400 million extra for the British Business Bank’s venture capital programme to help underwrite start-ups.

The pot of money is being privately described by Treasury sources as “an entrepreneurs’ fund”.

However, there will also be support for existing companies with the Business Bank able to guarantee up to £500 million of extra loans to existing firms.

Mr Osborne will also provide an extra boost for businesses with a year’s extension of the loan guarantees scheme where firms can borrow at a low interest rate, with the Bank of England guaranteeing loans from UK banks.

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Announcing the measures ahead of today’s Autumn Statement, Mr Osborne said: “The government’s long-term economic plan is working with the Funding for Lending Scheme playing a vital role in supporting the recovery.

“Now that credit conditions for households and large businesses have improved, it is right that we focus the scheme’s firepower on small businesses, which are the lifeblood of our economy.

“That’s also why we’ve reformed the banks, introduced the British Business Bank and are now focusing the Funding for Lending Scheme on supporting them.” Mr Osborne’s measures come as concerns have continued to be raised by business organisations that banks are either failing to lend or are demanding excessively high repayments to companies because of fears that they may default on their debts.

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The issue has plagued British business since the banking collapse in 2008 when financial institutions were forced to tighten their lending rules.

The announcements look set to please business leaders, who are looking for other pro-enterprise measures from Mr Osborne.

CBI director general John Cridland said: “Businesses want to see a pro-growth Autumn Statement.

“That’s why we are calling for an overhaul of the outdated business rates system, which harms companies’ growth, and expanding R&D (research and development) tax credits, to further improve the UK’s ability to compete globally.” But the Institute of Directors (IoD) warned that business was also being hit by “fiscal drag” which means more people are paying higher tax rates on lower incomes.

IoD director General Simon Walker said: “The government’s penchant for increasing taxation by stealth through fiscal drag is nothing short of scandalous.

“Fiscal drag damages our economy by taking away the incentive for staff to seek promotion, take on extra responsibility, work overtime or ask for a pay rise. We must make it harder for politicians to sit back and let fiscal drag take care of the public finances.

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“Ending this false economy by indexing increases in the higher rate tax threshold would send a strong message the UK rewards hard workers and risk takers.”

Mr Osborne’s plans to help companies suggests he is banking on a business-led strategy amid warnings that Britain’s tax-light recovery could blow a hole in his plans to shrink the deficit. Latest official forecasts are likely to show UK public finances will fail to meet targets even though the economy has performed better than expected.

Treasury revenues from income tax have been falling short of expectations despite record levels of employment – with many new jobs being part-time or low-paid, below the threshold for contributing.

A surge in stamp duty collected from property transactions has also slowed as activity in the buoyant housing market has cooled.

Latest figures show borrowing for the fiscal year-to-date from April to October at £64.1 billion, 6.1 per cent higher than the same period last year.

They suggest that the 2014/15 annual borrowing figure will fail to meet the forecast from the independent Office for Budget Responsibility (OBR) of a 12 per cent reduction.

Labour shadow Chancellor Ed Balls said the deficit figures underlined the Tory/Lib Dem coalition had failed on the economy.

He said: “David Cameron and George Osborne have now failed every test and broken every promise they made on the economy.

“They promised living standards would rise, but while millionaires have got a huge tax cut, working people are £1,600 a year worse off under the Tories. This cost-of-living crisis is why the Chancellor will have to admit he has broken his promise to balance the books by next year.”

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