Debt-ridden UK to spend billions on start-up lending

The UK government has pledged 1.5 billion pounds ($2.3 billion) to create a bank for small business lending, despite predictions that the country could be set for a bigger budget deficit than even debt-stricken Greece or Spain next year.

Economists at Morgan Stanley forecast that the UK’s deficit could hit 126 billion pounds ($196 billion), or 7.8% of GDP in 2013-14 – higher than Greece or Spain.

The UK government borrowed 61.3 billion pounds ($95.3 billion) in the first five months of the year – more than 25% over its target.

However, despite being deeply in the red, the coalition government has pledged cash to create a bank specifically for small businesses, in order to boost the nation’s start-ups.

The bank will lend cash to existing investors and lenders within the next 18 months, with the government claiming it will not require further borrowing to fund it.

Vince Cable, the UK business minister, told the Liberal Democrat party conference: “I am working with the Chancellor to develop a new institution that will combine a billion pounds of new government capital with a larger private sector contribution.”

“This will apply leverage through guarantees to support up to 10 billion pounds ($15.5 billion) of finance to small and mid-sized business – a significant portion of all the lending currently available.”

“We need a new British business bank with a clean balance sheet and an ability to expand lending rapidly to the manufacturers, exporters and high growth companies that power our economy.”

By contrast, the Australian government appears far less willing to invest money to directly aid cash-starved start-ups, despite having a far lower deficit, as well as unemployment and inflation rate, than the UK.

As previously reported by StartupSmart, both sides of Australian politics have rejected the idea of a start-up lending institution.

Indeed, despite having a far healthier fiscal position than the UK and many of its European counterparts, Australia’s innovation spending is, in some cases, regressing, as evidenced by the recent decision to freeze all new Commercialisation Australia grants.