Effect of state support for UK business

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Ken Clarke has criticised the government’s “piecemeal” bundle of initiatives launched to help business during the downturn as data showed a fall in bank lending to companies in the third quarter of the year.

The shadow business secretary said the annual fall in business lending had been the largest since records began. “The government’s reaction to the worst of the credit crunch was slow, piecemeal and inadequate,” he told the FT.

But analysis by this newspaper has shown that while a couple of the nine targeted business support schemes launched in the past year have struggled, others have had a relatively positive impact.

Lord Mandelson, meanwhile, admitted attempts to help business through the crisis had not been straightforward. The business secretary said: “The government has left no stone unturned in its efforts to improve SME [small and medium-sized enterprises’] access to finance during the economic downturn but the challenge has not been easy.”

The row comes as Gordon Brown this week promised to launch a new “growth fund” to provide venture capital for companies struggling to raise finance. The initiative is separate from a proposed £1bn fund for start-up technology companies. The two funds are the latest in a string of initiatives in the past year, which have ranged from the disastrous to the overwhelmingly successful.

The former include the “trade credit insurance scheme”, which was supposed to provide “up to £5bn” but – as of Friday – had issued only £18m of cover to 72 suppliers. The latter include a scheme to let companies defer their business taxes, which so far has allowed more than 150,000 businesses delay the payment of more than £4bn of taxes.

The business department has given the FT up-to-date information on nine schemes promised over the past year to help companies deal with the impact of the downturn. A supposed £10bn business lending guarantee scheme has seen only £2bn of guarantees provided to just two banks, Lloyds Banking Group and RBS. With only two months to go before the scheme reaches its end, the initiative looks likely to vastly undershoot its target.

But a small business loan scheme called the Enterprise Finance Guarantee, under which the government guarantees 75 per cent of loans to small companies worth up to £1m, is well on track. So far £619.5m of offers have been made and a further £340m of applications are being processed or assessed.

A separate Capital for Enterprise fund is also struggling to reach its target of £75m despite having been announced in January. Seven businesses have received £10.7m of investment while nine have accepted offers of £13.4m – less than a third of the total target. But this £24.1m is a sharp increase on last month when only £16m had been delivered.

Ministers argue that the slow progress of some smaller schemes has been dwarfed by the huge take-up of some bigger initiatives.

The government’s car scrappage scheme, announced in this year’s Budget, has seen 268,641 buyers receive a discount on new cars. The department has also made available up to £2.3bn in loans and loan guarantees for companies such as Vauxhall.

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