Chancellor George Osborne will unveil three credit easing schemes to release £20bn in loans to small firms when he delivers Tuesday’s autumn statement.

Under one such plan, the government would underwrite banks’ borrowing so they could pass on cheaper loans to firms turning over less than £50m.

The government wants to keep credit lines flowing to boost economic growth.

But shadow chancellor Ed Balls said access to credit alone would not be enough to restore business confidence.

Mr Osborne’s first scheme would see the government provide a guarantee for banks to borrow on the financial markets.

Those institutions would then be obliged to pass on the cheap lending rates to small and medium-sized companies.

It is said to be similar to the Labour government’s credit guarantee scheme of 2008, launched in the wake of the credit crunch.

In a second smaller scheme, he will propose that the government takes a stake in an investment fund with private sector investors to provide a source of credit or loans to medium-sized companies.

A third would offer an alternative to traditional bank loans by encouraging firms to sell bonds – or company IOUs – to the market.

A Treasury source told the Press Association the schemes were a “game changer”.

It would mean that a firm currently taking out a £5m loan at a typical interest rate of 5% would instead be able to borrow at 4%, saving £50,000 a year in interest payments.

Ministers hope it will be in operation by the start of the new year, and it is envisaged it will run for the next two years.

‘Not enough’

In a joint letter to Mr Osborne, shadow chancellor Ed Balls and shadow business secretary Chuka Umunna warned that the credit easing alone would not be enough to revive economic growth.

“At the current rate, over 1,200 people a day are entering unemployment,” said the letter.

“Businesses are going bankrupt at a faster rate than a year ago – despite your expressed wish for a private sector-led recovery.

“Access to credit will not in itself restore the confidence of business to invest. The country urgently needs a plan for growth and jobs.”

Mr Osborne is also due to announce a cap on rises for regulated rail fares, such as peak fares and season tickets.

A planned rise of 8.2% – RPI inflation of 5.2% +3% – will be restricted to 6.2% (RPI +1%), with the cap also covering bus and Tube fares in London.

The Treasury said its credit easing plan would not add to the country’s deficit, according to BBC political correspondent Carole Walker.

Our correspondent said: “They are sticking to that deficit reduction plan, but I think the chancellor does still face a lot of questions about how he is going to pay for things like those lower-than-expected rail fares, and that plan to tackle youth unemployment that we heard about.”

BBC

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