Darling urges banks to help small businesses

(Reuters)

Chancellor Alistair Darling today urged the banks to use a £4bn package of support from the European Investment Bank to help small and medium sized businesses through the credit crunch.

At Commons question time, Mr Darling said: "It doesn't mean that everyone who comes through the front door of a bank gets what they want on the terms they want.

"But I really do think it is important that British banks play their part.

"We, on behalf of the taxpayer, have put a lot of money into the banking system because we recognise its importance.

"They, in turn, have to recognise the importance, not just to the country but to banks themselves, in ensuring that small and medium sized enterprises get the support they need."

Shadow chancellor George Osborne said a sustained cut in interest rates would be the thing that would most help business.

And he warned ministers against "irresponsible spinning about Keynesian spending splurges," which had "spooked the money markets".

But Mr Darling said the Tories "haven't a clue" how to deal with the financial crisis and insisted it was the Government that was taking decisive action.

Labour former minister Don Touhig (Islwyn) welcomed the EIB's £4bn package, warning that many small businesses had faced "bully boy tactics" from British banks, who were denying them "vital capital to invest".

He asked: "What action is the Government able to take to ensure that British banks give the same support to small businesses, as our Government has given them?"

Mr Darling said: "It is important we do everything we can to support the small and medium sized businesses in this country.

"In addition to the EIB making available £4bn to the British banks we want to ensure that not only do the banks that have used the bank reconstruction fund make available funds to the 2007 levels, but they also make this EIB money available as well."

He told Labour's David Kidney (Stafford) that there must be discretion for the banks but added: "If we don't ensure there are adequate funds available to small and medium sized enterprises, we will exacerbate the situation."

Mr Osborne said: "The banks, of course, should act responsibly to help small businesses as the economy deteriorates. But the Government should act responsibly as well.

"Can you confirm you are still planning to increase the small companies tax rate next April.

"Even if this was a good idea two years ago - which I didn't agree it was - it's certainly not a good idea as we are in recession.

"Will you now abandon this tax rise?"

Mr Darling sidestepped the shadow chancellor's question, insisting that Government did have to play its part in supporting individuals and businesses.

"The fact that we have reduced the amount of tax that basic rate taxpayers pay is an extremely useful step.

"We have frozen fuel duty and I think that's a much better policy than the fuel duty escalator you announced in July, which would actually have resulted in fuel duty having to go up now at the very time businesses want tax to come down.

"We will continue to do everything we can to help businesses."

Mr Osborne said: "You are planning to increase the small companies tax rate next April. And you are still planning that big increase in family car tax next April as well.

"Surely the thing that would most help small businesses is a sustained reduction in interest rates.

"The Monetary Policy Committee (MPC) must make its own decisions. But the Government should do nothing that gets in the way of that.

"So will we have an end to all this irresponsible spinning about Keynesian spending splurges, all this irresponsible nonsense about borrowing without limit, that has spooked the international markets.

"Can we have instead a clear plan to get the public finances back under control because on the current path this Labour Government is set to leave behind it the biggest budget deficit of any Labour government in the entire history of this country - and once again it will be the Conservatives who have to clear up the mess."

Mr Darling retorted: "If I were you I would say a little less about spinning.

"I do think that at this time in the economic cycle, in the face of the extraordinary conditions we face just now, it is right that we support the economy."

Yesterday Mr Osborne had said he was against borrowing, the Chancellor said. "Well that would have a profound consequence on the economy."

He said the Conservatives were "all over the place" on economic policy.

The Bank of England had a "sufficiently wide remit" on interest rates, that allowed it to take into account the wider economy.

"You haven't a clue how to deal with this problem. The public want a clear course of decisive action. That's what we are doing.

"You are completely incapable of sticking to a decision and seeing it through," he told the shadow chancellor.

Labour's John McFall, chairman of the treasury select committee, said the Chancellor had agreed to answer questions from the committee on Monday, along with the Governor of the Bank of England and the chairman of the FSA.

The public had been asked to suggest questions and over 1,500 emails had already flooded in, Mr McFall said.

"One big issue is the issue of the banks not playing fair with both savers and small businesses and while the taxpayer is the lender of last resort can you impress on the banks that the taxpayer is certainly not going to be the sucker of last resort?"

Mr Darling said: "We need to make sure banks don't make a difficult situation worse."

Labour's Lyn Brown (West Ham) was blocked by Speaker Michael Martin from making a personal attack on the shadow chancellor.

She asked if the Government's task had been helped by the "leaking of confidential documents by the Bank of England and by Mr Osborne," and added: "What do you think of your opposite number's judgment?"

Amid Opposition protests and before Mr Darling could respond, Mr Martin demanded: "Did you warn the shadow chancellor you were going to make an attack on him?"

As Ms Brown indicated she had not, Mr Martin moved onto the next question.

Mr Osborne later quipped: "I look forward to the advance warnings of the attacks on me, which certainly would have helped in the last week!".