Cabinet office minister Oliver Letwin has defended the Government’s “experiments” with various credit schemes as it tries to boost economic growth.
Speaking at a Social Market Foundation fringe event on growth at the Conservative conference in Birmingham last week, Letwin expressed confidence that the Funding for Lending scheme will have a “significant” impact.
In 2011, the Government launched Project Merlin to set lending targets for banks but did not repeat the scheme this year. At last year’s Conservative conference chancellor George Osborne unveiled the National Loan Guarantee scheme, or credit easing, backing small business loans only for it to be dropped in June this year.
In his annual Mansion House speech in June, Osborne unveiled the £80bn Funding for Lending scheme to provide banks with cheap loans to encourage lending and low interest rates.
The Government has also launched FirstBuy, a shared equity housing scheme, and NewBuy to help first-time buyers access 95 per cent loan-to-value mortgages with Government guarantees.
Former shadow chancellor Letwin said: “Over the last 18 months we have experimented with a number of ways to overcome the so-called Zombie bank problem of lack of credit as a major determinant of economic growth under current circumstances.
“Nobody has faced this problem in the western world, although Japan had a similar problem, for a very long time so inevitably one is experimenting. I was personally very much involved in the Project Merlin effort and I think it had some effect but it was limited.
“FirstBuy, as opposed to NewBuy, has been a rip roaring success and is flying off the counter. NewBuy is a new scheme and so far not had anything like that sort of success but we hope that now it is becoming well-known it will begin to work.”
Letwin added: “Funding for Lending by contrast is an enormously big scheme and the Bank of England is putting a vast wall of money behind it. It has a profound linkage so that the money simply will not enter the banks unless additional money goes out the other side.
“We have yet to see what the impact is but we can be sure it will have a very significant effect if it is all used. I think there is a reasonable chance that a very high proportion of it will be and it could make a very significant difference.”