The Treasury plans to bring forward proposals for “credit easing” as ministers attempt to find ways to provide funds to private sector companies.
Speaking at the Conservative party conference, Chancellor George Osborne (pictured) said the Government is exploring ways to inject public money directly into UK businesses.
He said: “As part of my determination to get the economy moving I have set the Treasury to work on ways to inject money directly into parts of the economy that need it such as small businesses. It is known as credit easing.
“It is another form of monetary activism. It is similar to the National Loan Guarantee Scheme we talked about in opposition.
“It could help prevent another credit crunch, provide a real boost to British business, and over time help solve that age old problem in Britain of not enough long term investment in small business and enterprise.”
Treasury officials have told the BBC the proposal, which has not yet been finalised, would involve the Government buying corporate bonds issued by large companies. The aim is cut the cost of credit for firms and increase the supply of credit.
In the longer term, the Treasury hopes to encourage the creation of bonds made out of small business loans by promising to buy small business bonds, thus creating a market for them.