Osborne Seeks Investment Fund Backing for U.K.’s Small Companies

Chancellor of the Exchequer George Osborne sought 500 million pounds ($776 million) of investment from funds that will be matched by the U.K. Treasury to spur lending to small companies.

Osborne will seek bids from five funds to manage the latest tranche of the Business Finance Partnership. A further 100 million pounds will be loaned by Vince Cable’s Department for Business, Innovation and Skills.

The plan allows the government to pass on “the benefits of Britain’s creditworthiness to businesses and open up new options to finance them” Osborne said in a statement released by his office in London late yesterday.

The measures are part of Osborne’s 21 billion-pound credit-easing plan announced last year that’s intended to funnel loans to credit-starved small and mid-sized companies. The broader program underwrites loans to companies, allowing banks to extend credit at rates closer to those the government borrows at.

The International Monetary Fund urged Osborne last week to use the government’s balance sheet to underpin lending in the economy as part of a range of tools to help lift Britain out of its first double-dip recession since the 1970s.

Earlier yesterday, the European Union granted state-aid approval for the expansion of the U.K.’s Enterprise Investment Scheme, a tax break for investment in small companies, the Treasury said.

‘Higher-Risk Companies’

“These schemes form a key part of the government’s drive to ensure access for businesses to a range of sources of finance,” Treasury minister David Gauke said in a statement released by his office. “The generous tax reliefs provide a very real incentive to those considering investing in small, higher-risk companies. The success of this type of company is vital to the economic recovery.”

The program will be expanded to allow a 30 percent tax break on investments of as much as 1 million pounds, the Treasury said. Money can go to companies with no more than 250 workers instead of a previous limit of 50 employees. As much as 5 million pounds can be invested, up from a previous 2 million-pound ceiling.

The Treasury said the plan means 800 companies will get an extra 240 million pounds of investment by 2016.

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