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Osborne eyes biz credit scheme

Source: Reuters - Mon 26th Oct 2009

Conservative finance spokesman George Osborne on Saturday called for a loan guarantee scheme to boost business, saying a lack of credit remained one of the root causes of the country's economic woes.

Osborne told BBC radio there was a "catastrophic" lack of confidence in Britain's economic leadership, and doubts over its ability to live within its means as debt levels reach record levels.

His comments come a day after figures showed Britain's economy contracted in the third quarter of this year, quashing hopes the downturn was ending and instead marking the longest recession on record.

The Conservatives are well ahead in opinion polls and on course to win a national election that has to be held before next June.

"You need to address the root problems which are credit by creating loan guarantee schemes that work" he told BBC.

"Businesses cannot get access to basic banking services, so the credit crunch continues."

The government has pumped billions of pounds into the economy in an attempt to stimulate business activity including bailing out the banks, introducing quantitative easing, slashing interest rates and cutting VAT.

Chancellor Alistair Darling said he still expects growth to return by the turn of the year, but the economy remains stubbornly in recession, shrinking 0.4 percent between July and September.

It has now contracted for six successive quarters for the first time since records began in 1955, while other major economies, including France, Germany and Japan, have seen growth. 

Asked why it was that Britain was still in recession while other countries were coming out, Osborne said: "It is because people do not at the moment have confidence in the economic leadership and the future of the British economy under the present government.

"They don't think that Britain can get on top of their debts. There is also a catastrophic loss of confidence in economic leadership in this country."


Osborne said far from pump-priming the economy, the government had undertaken little discretionary fiscal stimulus beyond the VAT cut. He criticised one of the government's schemes, the trade credit insurance scheme, saying it had only helped 58 businesses so far.

Osborne said a credible plan was needed to reduce the budget deficit, set to hit 175 billion pounds, or more than 12 percent of gross domestic product this year, to maintain confidence at home and abroad.

"Because there is no credible fiscal plan to deal with the borrowing problems coming from the government there is a lack of confidence in the UK's ability to live within its means" he said.

Osborne set out his party's fiscal plans at this month's Conservative conference, including speeding up planned rises in the state retirement age and shaking up the welfare system.

Labour has said it would push for its toughest public sector pay deal for decades by seeking a pay freeze or small rise for the 750,000 best paid staff on the state payroll as part of its own plans to cut the deficit in four years.

The government will also recommend to pay review bodies there should be no salary increase in the next financial year for senior groups such as judges, top health service managers and family doctors.

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