£20bn loan plan for struggling firms

Schemes to underwrite up to £20billion of loans to struggling firms could be unveiled in a new bid to get the banks lending again.

It could release billions of pounds through high street banks to companies suffering from the credit crunch.

More dramatic action than previously expected has suddenly become possible because the number of job losses, business failures and gloomy warnings about the severity of the downturn.

And a new poll today suggested the deterioration in the outlook has finally thrown Gordon Brown's political recovery into reverse. Populus in the Times found that David Cameron has regained a double-digit lead, rising four points to 43 per cent, while Labour dropped two points to 33.

Announcements designed to boost lending are expected to begin tomorrow when Business Secretary Peter Mandelson will build on a £1billion scheme to underwrite loans made by the banks to small firms and exporters. He is expected to go further than an expansion already promised in the pre-Budget report last year and allow more loans to bigger companies to qualify.

But there are signs of more drastic action being considered after the pumping of tens of millions of pounds into the banks as fresh capital failed to improve the level of lending to small firms.

One option is a £20billion scheme to underwrite lending. It could mean taxpayers promising to pay 75 per cent of the money if the firm that borrowed it went bust and was unable to repay the bank. The Prime Minister yesterday sparked speculation he was thinking of resorting to a state-run lender or another City financier to supplement the high street banks, when he spoke in a BBC interview of "non-bank" lending. That, however, was played down by officials.

A senior Treasury source said the scale of the lending boost had not been decided yet and plans could take another week or two to finalise.

The Conservatives claimed a victory, saying that their calls for a national loan guarantee scheme had been vindicated and copied by Labour. Shadow chancellor George Osborne said: "It is clear that the Conservatives are setting the serious policy agenda for the recession."

Today's poll found that Mr Cameron and Mr Osborne are less trusted to deal with the recession than Mr Brown and Alistair Darling.

The Labour duo was backed by 38 per cent, compared with 35 who said the Tories would handle the problems better.

Eight in 10 respondents feared that the slump would get worse over the year. But only half thought their personal situation would deteriorate and 46 per cent expected they would be better off.