The Package Arrives

15 January 2009 - The package arrives

After much pondering by the authorities and speculation by the commentators, it has finally arrived. A package of measures announced by the UK Government is intended as the next dose of stimulus to get the juices flowing (regular readers might contrast the approach with that of Germany per yesterday’s diary entry). Three separate initiatives have been announced. First, a Working Capital Scheme. This is a £10bn two year guarantee fund that will secure 50% of the value of £20bn of short term bank loans to businesses with sales of up to £500m. The objective is to encourage banks to hold existing overdraft facilities and extend them. Secondly, an Enterprise Finance Guarantee. This is worth £1.3bn and is a one year fund that will guarantee 75% of risky bank loans to businesses with sales of up to £25m. It is an extended and cheaper version of the existing Small Firms Loan Guarantee Scheme. A premium of 1.5% over commercial rates will apply. Individual businesses will be able to apply for up to £1m and do so on three-month terms to tackle cash flow problems. Thirdly, a Capital For Enterprise Fund. This lowest fund is worth £75m to take stakes in businesses seen as strategically important to the economy but with too much debt on their balance sheet. Somebody unkindly said he could not see the wood for the trees.

About five minutes ago, there was an economy in Western Europe often referred to as either the equivalent Californian Golden Valley, or emerging Asian Tiger. Now its unemployment rate is forecast to end 2009 at 12%, it has a currency that has risen 29% against the pound (ouch) and house prices in its principal city have fallen by 28% in two years. It was the honey trap for all aspiring software engineers and stag-night revellers. Where are we talking about? Answer will be in tomorrow’s diary.