Tories propose temporary lending quango

The Conservatives would directly underwrite banks’ lending to British businesses to help UK firms through the credit crunch, David Cameron announced this morning.

The Tory leader said his party’s proposal for a temporary new government body, the national loan guarantee scheme, would provide funding for short-term credit lines, overdrafts and trade credit.

In return, banks would pass on a commercial insurance fee which would protect the taxpayer. Mr Cameron hopes the extra cost would act as a natural limit on the amount of loans taken up by businesses.

Banks would be required to make up some of the loan, meaning “reckless lending” would be avoided.

“This is not a new spending programme financed by more borrowing. It is like the secured guarantees for a fee that the Bank of England has already put in place for inter-bank lending, which we supported,” Mr Cameron said at the Policy Exchange thinktank in Westminster.

“By guaranteeing credit to our businesses. it gets to the heart of the credit crunch and goes a long way to solving Britain’s credit problems,” he added.

Mr Cameron has been branded the “do-nothing leader of a do-nothing party” by prime minister Gordon Brown after the government announced a £20 billion fiscal stimulus package in Monday’s Pre-Budget Report.

This morning he hit back, however, accusing the government of obsession with “the eye-catching initiative” and its stimulus being “of the short-term, by the short-term, for the short-term”.

“We get an economic package that doesn’t fit the economic cycle, but fits the political cycle – that doesn’t address the recession in our economy, but tackles the recession in their polls,” he continued.

“Temporary tax cuts before an election. Permanent tax rises after it.”

A Populus poll for the Times newspaper suggests a narrowing gap between the two party leaders over who is most trusted by the public to deal with Britain’s economic difficulties.

Mr Cameron received a four-point bump as the best leader “right now to deal with Britain’s economy in recession”.

He now stands on 36 per cent, up four points. Mr Brown is ahead by six per cent but has dropped ten points from 52 per cent since the last Populus poll earlier in the month.