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Government Aid for Small Businesses

14th January 2009

A multi-billion-pound package of measures aimed at unblocking lending to small and medium-sized firms is being unveiled by the Government amid fresh job losses and dire warnings about employment prospects.

Business Secretary Lord Mandelson is due to set out moves to protect companies from the worst effects of the recession - following warnings that nearly 100 a day are now going to the wall.

Lord Mandelson, who conceded on Tuesday that firms faced a "very difficult" credit climate, is expected to announce that the taxpayer will underwrite part of loans worth a total of more than £20 billion over the next two years.

A new raft of job losses or redundancy warnings were announced on Tuesday, including the threat of 400 cuts at Nottingham City Council, up to 200 through the closure of a distribution site for high street giant Argos and the threat of more than 230 redundancies after administrators said they were seeking a buyer for failed clutch manufacturer AP Driveline, based in Leamington Spa.

The maker of the Aga cooker said it had reduced its workforce by about 400 jobs in the last year and shortened factory hours to cut costs, while as many as 2,000 City jobs were reportedly facing the axe after the merger of investment banking giants Merrill Lynch and Bank of America.

Speaking after the economic situation dominated a meeting of the Cabinet at 10 Downing Street, Lord Mandelson said it was important the intervention "really targets genuine business needs in a way that gives value for money from the Government and the taxpayers' point of view".

Prime Minister Gordon Brown's spokesman said the Government was not proposing to offer "irresponsible blanket guarantees" for all business lending.

The Financial Times said the Government would underwrite 50% of up to £20 billion of "relatively low risk" credit to all but the 150 biggest UK firms - with the banks promising to up corporate lending.

It said a higher-risk taxpayer-backed 75% loan guarantee would also be made available to viable small firms in sectors considered vital to economic recovery and that there would be a multi-million-pound fund to provide share capital in debt-laden small firms with promising futures.

The Department for Business, Enterprise and Regulatory Reform would not confirm any details of the proposal.

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