Business secretary Vince Cable has announced the first steps towards a government-funded bank to address 'long-standing, structural gaps in the supply of finance'.

Business secretary Vince Cable has announced the first steps towards a government-funded bank to address 'long-standing, structural gaps in the supply of finance'.

The new bank will aim to attract private sector funding so that when fully operational, it could support up to £10 billion of new and additional business lending.

It is expected to bring together in one place government finance support for small and medium-sized businesses, and control the government’s interests in a new wholesale funding mechanism which will be developed to unlock institutional investment to benefit small businesses.

Cable says, 'For decades British industry has lacked the sort of diverse, long-term finance that is quite normal elsewhere. We need a British business bank with a clean balance sheet and a mandate to expand lending rapidly and we are now going to get it.

'Alongside the private sector, the bank will get the market lending to manufacturers, exporters and growth companies that so desperately need support.'

Cable adds the success of the initiative will not be in the scale of its own direct interventions but how far it shakes up the market in business finance and helps to ease constraints for high-growth firms.

'Having a functioning, diverse supply of finance is an integral part of the government’s industrial strategy. It is all about making the right decisions now to secure our long-term industrial success.'

Sources at the Department for Business, Innovation and Skills say the bank will operate at arms-length from government, and will be 'professionally run and commercially-focused'. 

Furthermore, the new institution will operate through the wholesale markets, and is intended 'not to have any retail presence and will not displace or subsidise banks'.

See also: Opening a business bank account