The Treasury’s new scheme won't end the credit squeeze

The Treasury has announced plans to stimulate bank lending to hard-up British businesses through subsidised loans. But the snag is, says James Ferguson - it won't work.

Last week the Chancellor, George Osborne, and the Bank of England governor, Mervyn King, outlined their strategy for coping with a worsening eurozone crisis.

Under a funding for lending' scheme, the Treasury will provide subsidised funding for bank loans to UK businesses of up to £140bn. In return, banks have to promise to expand, or at least sustain, lending to the non-financial sector. Anyone familiar with the plan's predecessor, Project Merlin, will know that banks are likely to aim for the lower hurdle and then fail even to reach that.

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James Ferguson qualified with an MA (Hons) in economics from Edinburgh University in 1985. For the last 21 years he has had a high-powered career in institutional stock broking, specialising in equities, working for Nomura, Robert Fleming, SBC Warburg, Dresdner Kleinwort Wasserstein and Mitsubishi Securities.