The National Loan Guarantee scheme, known as credit easing, is being wound down today as the Bank of England’s funding for lending scheme launches.
The Treasury says changes in market conditions mean the credit easing programme is no longer economical for banks to raise secured funding after launching last October.
It expects most banks to move to the funding for lending scheme, but says the NLGS will remain available if market conditions change.
Funding for lending is now open to banks for 18 months and the Treasury hopes it will boost lending and cut rates on mortgages and small business loans.
Chancellor George Osborne says: “The NLGS has made a real difference, with over 16,000 cheaper loans worth over £2.5bn already offered to businesses across the UK. In many cases, the money saved has meant an extra person employed who otherwise still might be looking for work.
“The more generous FLS has officially opened for business and will in time effectively take over from the NLGS, delivering credit easing to the whole economy.”
Labour’s shadow Treasury minister Chris Leslie says winding down the NLGS is another government u-turn that is another blow to Osborne’s credibility.
He says: “Despite promises from ministers, net lending to businesses has fallen in every month of this government. And there are serious questions about whether the new funding for lending scheme will really see lending to businesses become cheaper and easier to access.”
Royal Bank of Scotland, Lloyds Banking Group, Nationwide Building Society and Barclays have all confirmed they will use the funding for lending scheme but HSBC says it will stick to using retail deposits.
It works by lenders depositing collateral with the Bank of England as a security and using Treasury bills to access money at “rates close to Bank rate”.
Lenders can access up to 5 per cent of their existing stock of loans to SMEs and households and are incentivised to boost lending because every pound of additional lending would be eligible for the scheme.