A precarious state

It is human nature that some of the most red-blooded capitalists, who during the good times used to froth at the mouth at the thought of any kind of public expenditure, are among those now shouting loudest for help from the taxpayer. The most vociferous criticism of Lord Mandelson’s plan to guarantee loans for small businesses revolves around the assertion that it does not go far enough, promising £20 billion worth of capital compared with a similar, £50 billion scheme proposed by the Conservatives last month. There has been rather less complaint about the principle of bailing out private businesses and what it means for the future of enterprise.

We broadly welcome an emergency scheme which will help otherwise sound businesses survive the current constriction on credit. Businesses, especially small businesses, have been treated appallingly by the banks since the credit crunch began. It is one thing when businesses fail because they cannot afford the interest repayments on their debts; it is quite another when banks condemn businesses to bankruptcy by calling in debts even when repayments are being met. If a bank is prepared to advance a loan, it is wrong that it should then call in that loan on the basis that the assets on which it is secured have fallen in value. If the banks demanded instant repayment of mortgages from homeowners who were still meeting their repayments but whose house is now worth less than their loan, there would be outrage; yet this is the situation in which many businesses find themselves.

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Stephen Daisley

David Lammy’s imperial overreach

In the longer term, it may be necessary to legislate against unfair contracts in business loans. In the meantime, we believe it right that the state should step in as an emergency banker of last resort, even if it does mean exposing the taxpayer to £10 billion of debts.