The government should create an investment vehicle to buy up business loans from banks, says a leading thinktank.
The loans in turn could be packaged up as bonds and sold to the Bank of England as it attempts to kickstart lending to the small business sector through credit easing, the National Endowment for Science, Technology and the Arts (Nesta) said.
With the Treasury continuing to work on how its proposed credit easing plan will operate, Nesta reckons that "British industry and enterprise bonds" could be created by packaging up the business loans granted by banks and given top-notch ratings that would enable them to be bought through the Bank's £75bn quantitative easing programme.
"Providing access to new pools of capital is the long-term solution we need to unlock credit to Britain's small businesses," said Stian Westlake, Nesta's executive director of policy and research.
The chancellor raised the idea of credit easing in his party conference speech last month and is continuing to work on a range of ideas on how to put it into action - which could include measures to ease tensions in the inter-bank lending market - ahead of next week's autumn statement. Providing any guarantee from the government could have an impact on the government's deficit reduction plans, although the Treasury would argue that any effect would be temporary.
