British government unveils new economic aid package

January 15th, 2009 - 2:24 am ICT by IANS  

London, Jan 15 (DPA) The British government announced a new aid package Wednesday to unlock the credit squeeze by offering loan guarantees to small and medium-sized businesses.The measures, worth 20 billion pounds ($29.6 billion), are aimed at reducing the risks of banks lending to companies struggling in the current economic downturn.

Publication of the aid package coincided with a continuation of job losses in the finance sector and in the car industry, with Barclays bank and luxury carmaker Jaguar Land Rover announcing major job cuts.

The loan-guarantee scheme, outlined by Industry Secretary Peter Mandelson, is limited to one year. It will provide guarantees on 50 percent of short-term loans to businesses with an annual turnover of up to 500 million pounds.

In effect, it means that, in return for a small fee, the state insures banks against firms defaulting on repayments.

The move follows widespread criticism of banks for “sitting on their hands” by refusing to give credit despite a major government bail-out package in October.

However, there were immediate fears Wednesday that the new aid offer would not be sufficient to help businesses gain access to much needed credit.

“Twenty billion pounds is not a very large number in the context of the problem,” private equity chief Jon Moulton said.

The opposition Liberal Democrats’ finance spokesman, Vince Cable, urged the government to “stop messing around with stunts and wheezes and ensure that the banks owned or part-owned by taxpayers operate as state banks maintaining lending for the economy.”

Business leaders have said that the lack of available finance has played a part in the accelerated downturn, as inter-bank lending failed to be revived by the government’s massive recapitalization programme.

Last October, three major British banks were bailed out with a 37- billion-pound rescue package aimed at helping them to shore up their balance books and make affordable funding available.

In a clear attempt to place greater focus on the lending issue, MandelsWednesday appointed Mervyn Davies, the former chairman of Standard Chartered Bank, as his state secretary for business, enterprise and regulatory reform.

Meanwhile, Barclays Bank Wednesday announced further staff reductions, bringing to more than 4,000 the number of jobs that will be shed at the bank in Britain and overseas.

Barclays, Britain’s third-biggest bank, said it planned to cut 2,100 jobs at its retail and commercial banking business, affecting many high street branches.

The announcement came less than 24 hours after it confirmed proposals to cut at least 2,100 posts at its investment banking arm, Barclays Capital, and at Barclays Global Investors business.

There was also gloomy news from the car industry with luxury carmaker Jaguar Land Rover announcing 450 job cuts, including 300 at manager level, due to a “severe reduction” in demand for new cars.

The firm, which was bought by India’s Tata group for 1.7 billion pounds last year, employs a staff of 15,000 at plants in Britain.

Jaguar Land Rover had been among top carmakers urging the British government to provide financial aid to the car industry.

Prime Minister Gordon Brown’s spokesman said Wednesday the government was “disappointed” at the announcement.

Last week, carmaker Nissan said it would cut 1,200 jobs at its giant plant in Solihull, north-east Britain.

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