Cable to announce creation of state-run Business Bank

The Business Secretary will tell the Liberal Democrat conference this afternoon that he has secured the agreement of the Treasury for the creation of a British Business Bank backed directly with £1bn of Government money.

The new institution will not lend directly to businesses, but will provide capital to new types of lender in an effort to “break the stranglehold” of the main four high-street banks.

It will leverage in private capital and guarantees to make up to £10bn available, targeted specifically at smaller firms.

It is the most dramatic intervention by the coalition so far in their efforts to make new streams of funding available to SMEs whose struggle to access capital has been hugely exacerbated since the economic crash and subsequent credit crunch.

Mr Cable will say: “We need a new British Business Bank with a clean balance sheet and an ability to expand lending rapidly to the manufacturers, exporters and high growth companies that power our economy. Today I can announce we will have one.

“I am working with the Chancellor to develop a state-backed institution that will combine up to £1bn pounds of new government capital with a larger private sector contribution.

“This will then apply further leverage through guarantees to support up to £10bn of finance to SMEs and mid-sized business – a significant portion of all the lending available.”

The bank is expected to be operating in 12 to 18 months and should not require a major new piece of legislation.

Sources close to Mr Cable stressed the aim was to address a “long-term structural issue” within the UK economy.