The British chancellor George Osborne will unveil plans to pump £40 billion (€48 billion) of cheap loans into small businesses in this week’s budget, in a desperate bid to boost the UK economy.
He is also considering a cut in the top rate of income tax from 50p to 45p following stinging criticisms from some of Britain’s leading entrepreneurs.
To appease his Liberal Democrat coalition partners, he will launch a crackdown on tax avoidance by rich individuals, which is expected to raise up to £1 billion a year.
However, the key to what he will present as a “pro-growth” budget will be the credit-easing scheme he flagged up in last year’s autumn statement. Companies with turnover of up to £50m will be given access to cut-price loans through a deal arranged with the big banks.
The British chancellor will initially make £20 billion available, but this could double over time.
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The UK government has diverted £40 billion from the Bank of England’s quantitative easing facility to fund the scheme. Lloyds Banking Group, Royal Bank of Scotland, Barclays and Santander are all believed to have signed up, although HSBC is still in discussions with the government.
HSBC can already raise debt in the markets at similar rates to the government.
Under the scheme, the banks will be able to use the government’s AAA credit rating to raise cheap funds in wholesale markets. This is likely to cut the cost of loans to small firms by about 1%.
Osborne is also likely to signal further cuts to corporation tax. This is already set to fall from 26% to 25% in April, and 23% over the parliament, but he could announce another reduction to 20%.
The pro-business tax changes will be offset by a crackdown on avoidance schemes — highlighted by Nick Clegg, the deputy UK prime minister, who called for a “tycoon tax” last week to hit wealthy individuals who move their cash offshore.