Nationalisation threat to banks

Banks are told to do their bit for the economy / Downing Street considers ‘nuclear option’ to make lenders release cash

The Government is using the threat of a wholesale nationalisation of banks in an attempt to force institutions to lend billions to small companies struggling to survive as Britain slips into recession.

Downing Street yesterday made plain its fury over high street banks which refuse to use the massive injection of taxpayers’ money they have received to come to the rescue of businesses hit by the credit crisis. Lenders have also faced criticism over interest rates charged to homeowners and for stepping up repossessions.

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Meanwhile, Gordon Brown dismissed suggestions that he should take advantage of his reviving popularity by calling a June general election, insisting he was fully focused on steering Britain out of the downturn, starting with Monday’s pre-Budget report.

It will spell out plans for tax cuts and assistance for the country’s 4.7 million small firms. The aid will be funded by increases in government borrowing, which is on course to exceed £100bn next year. Alistair Darling, the Chancellor, will also announce that taxes will have to rise in the medium term to reduce the national debt. The financial stimulus package is designed to breathe new life into the economy but Mr Darling fears the behaviour of the banks could undermine the moves.

He is expected to announce controlson the interest rates charged on small business loans, as well as measures to stem the rising tide of repossessions.

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