George Osborne will this week offer an olive branch to banks angered by recent tax moves, extending a flagship programme aimed at bolstering lending to small businesses.
The Social Magazine understands that Treasury officials are looking to prolong the Funding for Lending Scheme (FLS) beyond its intended expiry in January.
Sources said on Sunday that an extension of either one or two years was likely to be announced by the Chancellor in this week’s Autumn Statement.
The move will pave the way for the Bank of England to provide tens of billions of pounds to banks to pass on in the form of loans to small and medium-sized companies (SMEs).
Launched in 2012, the initiative was designed to stimulate lending to households and businesses, but has since been refocused to spur lending to SMEs as credit conditions elsewhere in the economy have improved.
Under changes introduced this year, participating banks can draw £5 in the scheme for every £1 of net lending they make to SMEs.
The fact that a move to prolong the FLS is under active consideration underlines the continued difficulty in growing borrowing by SMEs, even as the UK economy has expanded.
Any extension to the FLS will require the approval of the Governor of the Bank of England, and sources said that discussions between Treasury and Bank officials were likely to result in an agreement by Wednesday.
Assuming it does get announced, the next phase of the FLS is likely to be welcomed by the challenger banks which have complained about being hit by a new Corporation Tax surcharge due to be introduced next year.
Announcing the last extension of the FLS nearly a year ago, Mr Osborne said: “The Government’s long-term economic plan is working with the Funding for Lending Scheme playing a vital role in supporting the recovery.
“Now that credit conditions for households and large businesses have improved, it is right that we focus the scheme’s firepower on small businesses, which are the lifeblood of the economy.”
The Treasury declined to comment on its plans for the FLS on Sunday.