The Government is preparing a radical plan to lend direct to struggling firms in a fresh attempt to keep business going through the recession, it was reported.
The Daily Telegraph reported that small firms taking out a bank loan will be able to request "matching funding" from the Government, which will effectively be acting as a bank itself.
The paper said that, in practice, the Government is likely to provide more than half the funds firms need, with ministers expecting the banks to come up with no more than 25%.
Officials at the Department for Business and Enterprise said Leader of the House Harriet Harman referred to the scheme when she stood in for Gordon Brown at Prime Minister's Questions on Wednesday but were unable to confirm details.
Ms Harman told MPs that a new small business loan guarantee scheme would be established in January.
"It's true to say that, while lending figures are starting to show increasing lending to small businesses, there are still businesses having problems," she said.
The move appears to reflect the continuing frustration among ministers that businesses are still finding it difficult to get the credit they need, despite the Government's £37 billion bail-out of the banks.
The proposed new scheme, which, it is said, has still to be finalised, would enable the Government to get round the problem by cutting out the banks and providing firms with the credit directly.
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