Yes the real problem is one of demand (businesses not even applying for loans as there is no point expanding) rather than supply of loans. Like you say many businesses especially small ones have no track record or collateral which is the market failure, the bank doesn't have enough information on them to make an accurate assessment. There is a scheme called Enterprise Finance Guarantee that small businesses can apply to where the government guarantees 75% of the loan to the bank in the event of default, so its still the bank that makes the decision on whether the business is viable, but it takes away some of the risk so the ones that are at the margin where the bank thinks they look like they have a good plan but feels its a bit of a risk, will get loans. There are limits as to the overall amount of cover any bank gets from the government though, so they can't just use this to guarantee all their loans.

the likes of lloyds are refusing to even read business plans or look through the books of businesses in certain sectors e.g anything property or construction related. liquidity is the life blood of any economy and the banking sectors refusal to release funds to viable companies strangles off growth and jepordises the viability of these businesses so the circle continues. The failure to lend on the basis that the economy is weak is a self fulfilling prophecy. The govt owning a section of the banking sector gives them a way of breaking this circle but its one the condems refuse to use

This why we need to do what I believe Cruddas is looking at in Labour's policy review. It is setting up regional investment banks based on the German model who's job it is to lend to businesses and take along term view. The idea may well be to not de-nationalise RBS but instead turn it into this kind of entity divided up into separate regional banks with this task in mind.

Any hint of that happening and you can bet your life this bunch of shysters will have it flogged off to their mates, no matter what the cost to the taxpayer

Which is why the government needs to start spending more in the economy to stimulate demand.



Osborne keeps saying his austerity plan has restored confidence on the markets, but what confidence is this? UK government bonds have low interest rates but thats a consequence of expectations of long term low interest rates from the B of E as much as confidence that we won't default, rates were never high anyway even when Labour were in power.



The 'market' has no confidence in the economy hence the private sector banks don't want to lend. They had all this supposed evidence that austerity can be expansionary because by cutting the size of the state it releases resources to the private sector so the private sector will grow, but it wasn't an issue of fighting over resources anyway because there are large numbers of unemployed workers and large amounts of investment funds being unused.



There are four components of demand, consumer spending, business investment, government spending and net exports. Most of our main trade partners are in a worse state or as bad a state as us so we can't expect huge amounts of exports any time soon, so if we're committed to cutting government spending we are relying on consumer spending and business investment - and where is this going to come from....?



The big joke is the government even rejects the tax cutting argument. If you want to stimulate demand then cut VAT and you get a direct effect on spending, because people only benefit from a VAT cut by spending. It's not like an income tax cut where people will save some of the benefit so it doesn't contribute to demand. But the Tories for some reason seem totally disinterested in this tax cut, the tax cuts they want is tax cuts for the top earners, which have the lowest effect on contributing to demand. The IMF has suggested the UK needs to look at VAT cuts as a stimulus but Osborne won't have it.

The Tories have never cut vat. They introduced it as part of the EU package at 10%. When Labour left office in 1979 it stood at 8% The first Tory budget put it up to 15% (they'd denied they'd double it in the campaign and they didn't

) They then increased it to 17.5% in 1990, where it stayed until the temporary cut in 2009. This cut was decried as useless by the Tories and Lib/Dems but IMO did more to stimulate growth than any other measure Labour took in that period. Almost the first thing Osbourne proposed was a VAT increase to 20%, The result is what we've now got.

The Tories believe in low taxes - but low income taxes which benefits the better off more than low VAT benefits them. It seems to me that it's an ideological thing with them. But the time for ideology is rapidly running out. Time for some pragmatism. We're up s h i t creek time to look for the paddle.

This is a very good point and I believe "major hound" hit the nail on the head when they said it was for ideological reasons they cut income tax and not VAT.

[url=http://www.telegraph.co.uk/finance/economics/9339754/Cable-calls-for-state-support-to-boost-new-house-building.htmlVince Cable calls on government to stimulate housebuilding[/url



Someone should remind the dopey old fooker he IS part of the government

What Cable is suggesting would have to be agreed between Treasury and Dept for Communities & Local Govt (Eric Pickles), its not something he could control in BIS. So Cable is saying this in public to try and put pressure on his colleagues, he has probably already been telling them this in Cabinet.



At least Cable is speaking out a bit and not just being a toady parroting the government line.

Wouldn't it be better if he was more forceful in presenting his views to Cabinet and getting them implemented, rather than constantly appearing like an embarrassing old uncle that everyone has to make excuses for?



Maybe he and Brown could form the a new party called "Brilliant but Bonkers"? The Monster Raving Loony party is old hat (literally) now and needs replacing something more pertinent to the current world situation.

There is of course collective responibility where the Cabinet is concerned. Cable's line is "things'd be a lot worse if it wasn't for me" Bear in mind that Cable is a former member of the Labour Party and as such is probably still at heart a social democrat. I wouldn't be surprised to see him do a "Hesletine" but he'll probably pick the moment he can have most effect.

Yes - Alastair Darling cut VAT to 15% for a year in 2009 but when the Tories came in they were quick to say that the cut in VAT 'made no difference' hence they hiked it up even higher than it had originally been. But of course when it comes to higher taxes for top earners, they are full of warnings about how this will devastate the economy because all the rich will go to Switzerland etc.



The Office for Budget Responsibility analysis released at the time of the election said that they estimated 48% as the optimum upper tax rate, which begs the question if Osborne was cutting from 50% why not choose 48% rather than going to a sub optimal rate of 45%...



I expect over the next few years we will see a similar story - the top 1% rich increase their wealth disproportionately whilst the other 99% become relatively poorer, as there is never any real evidence of 'trickle down' effects, but the argument then will be that the reason it isn't trickling down is because top tax rates are too high, and wages at the lower end are also too high, and you need to cut taxes for the top earners and allow wages at the bottom end to adjust downwards and THEN you will see some trickle down effects....