As small to medium enterprises continue to struggle to make money in the tough economic climate, George Osbourne has offered a helping hand. The Chancellor of the Exchequer has announced that loans totalling 4bn will be used to help struggling businesses.
The announcement seems to be a response to the unfolding European debt crisis. Osbourne hopes that by helping out smaller businesses, Britain can avoid being dragged in to the woes faced by other EU countries.
The money will come directly from tax payers and will be used as the treasury moves towards a plan of 'credit easing' as more tax money is used to help smaller businesses struggling to make any profits. Alternatively, the banks have suggested a scheme in which the treasury would contribute approximately 800 million and the banks contribute the rest of a suggested 4 billion, but final figures are yet to be announced.
The English banks have a limited exposure to European banks, with the exception of the Republic of Ireland and France. The French banks however, own a great percentage of Italian and Spanish debt. This means that if one of these banks went bust, it would make borrowing in the financial markets very difficult for the UK banks.
Banks had previously promised to help out small firms but have since taken a U-turn on that statement, failing to lend the money they said they would. Targets were set by the government to banks as an outline of the money they should be lending, but figures show that the top 5 banks were around 1bn below the target set out.
There is also the issue of foreign currency investments which incurs foreign currency debts. If foreign currency borrowing becomes difficult then the investments will have to be sold quickly and possibly at a huge loss. Again the Bank of England does have agreements with their banks to provide emergency loans in their required currencies.
With the growing costs to tax payers, the treasury is looking on new and innovative ways to draw upon private sector capital.
However in light of recent publications from the Bank of England, which outlined the slash in growth prospects, this will be difficult and could put increasing pressure on the taxpayers, already in billions of pounds of debt.
The announcement seems to be a response to the unfolding European debt crisis. Osbourne hopes that by helping out smaller businesses, Britain can avoid being dragged in to the woes faced by other EU countries.
The money will come directly from tax payers and will be used as the treasury moves towards a plan of 'credit easing' as more tax money is used to help smaller businesses struggling to make any profits. Alternatively, the banks have suggested a scheme in which the treasury would contribute approximately 800 million and the banks contribute the rest of a suggested 4 billion, but final figures are yet to be announced.
The English banks have a limited exposure to European banks, with the exception of the Republic of Ireland and France. The French banks however, own a great percentage of Italian and Spanish debt. This means that if one of these banks went bust, it would make borrowing in the financial markets very difficult for the UK banks.
Banks had previously promised to help out small firms but have since taken a U-turn on that statement, failing to lend the money they said they would. Targets were set by the government to banks as an outline of the money they should be lending, but figures show that the top 5 banks were around 1bn below the target set out.
There is also the issue of foreign currency investments which incurs foreign currency debts. If foreign currency borrowing becomes difficult then the investments will have to be sold quickly and possibly at a huge loss. Again the Bank of England does have agreements with their banks to provide emergency loans in their required currencies.
With the growing costs to tax payers, the treasury is looking on new and innovative ways to draw upon private sector capital.
However in light of recent publications from the Bank of England, which outlined the slash in growth prospects, this will be difficult and could put increasing pressure on the taxpayers, already in billions of pounds of debt.
About the Author:
Priyanka Zaveri writes articles on behalf of Ferratum. Ferratum provide instant payday loans and Fast Cash Loans across the world.
0 comments
Post a Comment