Credit easing plan should be music to business' ears!

Has George been listening? Yesterday’s announcement by the Chancellor that the Government is considering some "credit easing" appears to be a clear acknowledgement that he wants to get money going directly to companies because they can’t trust the banks to do it for them!

In case you missed it, the Chancellor announced that he was considering ways of getting credit flowing to business either by buying corporate bonds directly or by offering overdraft facilities and short term credit lines. He said: "I have set the Treasury to work on ways to inject money directly into parts of the economy that need it such as small business. It is known as credit easing. It is another form of monetary activism. It is similar to the national loan guarantee scheme we talked about in opposition."

A couple of points. Firstly, this is very good news for business and is an acknowledgement by the Government that we cannot go on much longer without access to credit. I have detailed in past blogs the difficulties companies are having buying capital equipment for example which is stopping them winning contracts and fulfilling orders. If the economy is to get moving again this is a very welcome step.

Secondly, it is a damning indictment of the banking sector that only seven months after the signing of the Project Merlin agreement which made banks promise to lend to business in return for allowing them to pay bonuses, the Government is being forced to step in. As Bob Peston on the BBC put it: “It's proof the Treasury has given up hope that - in the absence of structural reform of the credit market - small businesses will find it any cheaper or easier to borrow, even in the longer term.”

There were plenty of people (and I was among them) who had deep concerns at the time that the fine print of Project Merlin had too many get-out clauses which would allow the banks to wriggle out of their commitments. Unfortunately it gives me no pleasure to say we were right!

My only question to the Chancellor is why did this take so long?