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Funding for Lending Scheme may get extension

The programme should be pumped up and ‘put on steroids’, says Nick Clegg.

The Funding for Lending Scheme, launched by the Bank of England (BoE) and HM Treasury in July 2012, is expected to be extended even after figures confirmed it failed to give a boost to small and medium enterprises.

The scheme was aimed to improve lending to households and businesses.

Deputy Prime Minister Nick Clegg is firm that the programme be pumped up and put ‘on steroids’ following a £2.4bn net lending decline in the fourth quarter of 2012.

A senior Liberal Democrat told the Financial Times: “We are pushing for FLS to be extended and there is general agreement between both sides of the coalition. Can we extend it, can we increase it, can we direct it to SMEs? These are the things on the table.”

George Osborne and senior Liberal Democrats want to see the scheme extended beyond 2013 and direct towards business lending rather than mortgages. Meanwhile, Vince Cable has instructed officials to consider what practical measures can be taken to improve the scheme.

Ed Balls, Shadow Chancellor of the Exchequer, said: “We can’t go on like this. Boosting lending to small and medium sized firms is absolutely vital if we are to get our flatlining economy moving.”

Osborne is expected to use the upcoming Budget to indicate his determination to improve the lending landscape for SME sector in an effort to appease his backbenchers.

Bankers believe the government may give careful attention to a call from Labour to split the scheme into two buckets so that a bank that was shrinking its legacy mortgage book could still qualify for the cheapest rate on SME funds as long as its SME book was growing, reported FT.

One senior government source told FT: “If the Funding for Lending Scheme drives down mortgages from 5 to 4 per cent that does more for the macro economy than the SME sector, but the SMEs are a politically important constituency.”