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An £80bn government scheme aimed at providing cheaper loans to individuals and businesses in order to kick-start the economy has received a mixed reception.
The aim of the Funding for Lending Scheme (FLS), first announced in June, is to give lenders incentives to increase lending over the next 18 months. Banks and building societies are able to borrow cheaply from the Bank of England if they pledge to pass the money on in loans to households and businesses.
Participating institutions can borrow up to 5% of their existing loan book. Each will pay a fee for borrowing through the scheme, with the price dependent on the volume of loans that they make from the end of June 2012 to the end of December 2013.
Banks or building societies maintaining or expanding their lending over that period will pay 0.25% annually on the amount borrowed. If total lending declines, the fee will increase, up to a maximum of 1.5% interest if it falls by 5% or more.
The CBI said that the scheme ‘should support banks to make finance more affordable to businesses and consumers, while also encouraging banks to lend more’.
However, Clive Lewis, ICAEW head of enterprise, said FLS only created’ more confusion’ at a time when business confidence is week and credit easing measures should be aimed at providing greater stability.
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